Investing Reflections On India

IPI is an investment company holding securities with market value of about 307cr as at 31 st March, 2011.  It has increased dividend payouts commensurate with increases it receives but the overall payout is low.  Its investments appear to be largely of a long-term nature (over 90% of total) with incremental additions being added to liquid mutual funds. Being an investment company, the balance sheet is better indicative of value as income statement performance is simply derived from investments and incomplete (as full share of investees’ earnings are not reported) and hence, performance numbers are largely irrelevant to a fundamental assessment of the company. The primary risk pertaining to the company is impairment in the intrinsic value of securities and fund units it holds as reflected in diminished market prices and net asset values (NAVs) over the long run.  Moreover, the dividend payout is abysmally low with less than 1% of liquid assets paid out last year raising

Neelamalai Agro Industries manufactures tea and may also be classified as an investment company due to its large liquid investments. The company reported about 48cr in liquid investments and 4cr in net current assets in the last financial year and this appears to have increased by 5 to 10cr in the six months to 30 th September, 2011. The company reported declining operating profit margins on growing revenues – reporting about 1.5cr in operating profits on revenues of about 18cr in the last financial year. The tea business is primarily subject to risks of uncertain monsoons, tea crop oversupplies, wage cost increases etc. Management haven’t bothered to discuss the prospects for the business.  Moreover, they’ve committed resources to unquoted companies for which no financial information is disclosed – including a recent commitment for an apparently unrelated spice trading division in Singapore (although for only about 1cr).   Further, the dividend appears entirely

Rapicut Carbides is in the business of manufacturing tungsten and tungsten carbide products. The company has installed new equipment in the current year, which is expected to reflect in increased revenues for the year. The company reported decent growth in revenues and operating profits in the last five years – reporting over 5cr in operating profits on revenues of over 27cr in the last twelve months.  It employed minimal net debt to finance its operations. The company doesn’t appear to have much pricing power in its field, being unable to pass the full extent of input cost increases to the customer – reflecting the lack of satisfactory competitive strength.  It is exposed to increases in its raw material input – Blue Tungsten Oxide – imported from China.  As a result, it is also exposed to a weakening INR.

Garware Marine manufactures fishing nets under the “Garware” brand.  There is potential for growth in fishing on account of unused coastline, water, and reservoirs.  There is also demand growth in the Middle East and other South Asian countries indicating potentially higher export growth.  The company is considering adding new machines to cater to this. The company reported marginal operating profits on reasonably stable revenues over the last five years – reporting about 65lacs of operating profits on revenues of about 11cr.  It held shares in Global Offshore Services Limited with a market value of about 11cr and employed no debt to finance its operations.  The company faces stiff competition from the unorganised sector and Chinese fishing nets.  Moreover, there has been a reduction in reported sale volumes and fish stocks (3%) in the recent past.  The business is also exposed to extended monsoons, raw material price increases with only partial pricing power, compli

Arex Industries is in the business of manufacturing garment labels for use in readymade garments. The demand for readymade garments is growing at a decent rate, which bodes well for the industry. The company reported decent growth in revenues and operating profits over the last five years – reporting about 10cr of operating profits on revenues of about 25cr in the last financial year.  It operated with a moderate debt load of about 13cr (as at 30 th September, 2011), which could get uncomfortable if the operating environment becomes worse. The company is primarily exposed to intense competition within its industry from the unorganised sector.  Moreover, the company’s product is low value-added, which results in a lack of pricing power.  It is exposed to rising yarn prices.  It is also vulnerable to excise duty hikes/other adverse policies by the government (as done in the last year).  Being a net exporter, a strengthening INR could be adverse for profitability although

Nelcast manufactures iron castings for use in the automotive industry. The company plans to expand into supplying to manufacturers of earth moving equipment and trailers.  It also intends to focus on exports and supplying to OEMs. The company reported declining operating profit margins on moderately growing revenues – reporting about 30cr of operating profits on revenues of about 500cr in the last financial year.  It operated with a moderate net debt load. The business is dependent on the fortunes of the auto industry, which is cyclical.  Moreover, it faces stiff competition from players in the unorganised sector and new foundries that have come up.  It is exposed to metal price rises and a strengthening INR since it’s a net exporter.

Modern Shares is in the business of primarily providing brokerage services. It owned about 13cr of net liquid assets as at 30 th September, 2011. The company has reported erratic profitability on somewhat stable revenues over the last five years – reporting about 40lacs of operating profits on about 3cr of revenues in the last twelve months.  The business is exposed to all the risks of the brokerage business including exposure to the stock market cycle with low retail demand in down years, intense competition, heavy regulations, etc. Moreover, management have paid very low dividends relative to liquid assets and minority shareholders ought to press for larger payouts if there doesn’t appear to be any prospect for profitable (and imminent) reinvestment of funds.