Investing Reflections On India

Nahar Capital and Financial Services is an investment company.  It owned about 425cr of liquid investments in market value as at 31 st March 2011.  These are, however, subject to substantial downward revisions as some of their major holdings have suffered market value depreciation of over 33%. Being an investment company, income statement performance adds little value to balance sheet analysis. The business is subject to all the risks of investing and the investment company structure – mainly exposure to permanent impairment of investments and hoarding of resources by management without intention to distribute them to their owners even when this is the most sensible course of action. Management have paid negligible dividends relative to liquid assets and shareholders ought to compel management to pay out a larger proportion of assets or justify the hoarding of shareholders’ resources.   Management appear to claim to perform some sort of valuab...

Mahalaxmi Seamless manufactures steel seamless pipes and tubes used in iron and steel products for industrial as well as domestic use. It is expanding capacity with a new plant and intends to focus on higher margin stainless steel tube products in the future, which constitutes <15% of current sales mix. The company reported declining performance on a somewhat stable revenue base over the last five years – reporting operating losses on revenues of about 32cr in the last financial year.  It operated with a moderate debt load. The business is exposed to rises in raw material costs, petrol prices, etc. as well as a weakening INR increasing its import bill. The company has been plagued by employee strikes in the recent past indicating unsatisfactory management-labour relations. Moreover, the auditor qualifications point to unauthorised related party transactions, lack of shareholder resolution for the appointment of a relative as a company director, lack of ade...

Kilburn Office Automation is a distributor of office automation equipment. It has tie-ups with leading suppliers in niche categories – document management, mailing and banking.  Revenues mainly comprised sales of paper copiers, coin vending machines and digital franking machines.  It also makes revenues on after-sales service for these products.    The company reported about 12cr of net current assets in the last financial year but operated with a relatively high debt load of 18cr as at 30 th September, 2011.  The company reported, however, reported declining operating margins on stable revenues – reporting about 6cr in operating profits on revenues of about 55cr in the last financial year.  It reported net losses in the last twelve months as a result of high interest costs on its average debt load during the period.  The primary risk the business faces is that of product obsolescence since they are heavily technology-based and vuln...

Photoquip manufactures digital studio flash lights, photographic accessories etc. The company has a global presence for flash lights and accessories – with growth potential in unexplored global and local markets. The company reported good growth in revenues and operating profits over the last five years – reporting about 7cr in operating profits on revenues of about 60cr in the last financial year.  It employed minimal net debt to finance its operations. The business is primarily exposed to the risk of technological obsolescence in its field as a result of electronic innovations.  It is also exposed to a strengthening INR as it’s a net exporter. The company is exploring entry into the electronic goods market.  Management claim to have the expertise but they have no direct track record in this field and the extent of resource commitment is unknown.  Moreover, management have not paid any dividends in the last five years raising questions on thei...

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...

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 ap...

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.