Investing Reflections On India

Frontier Springs manufactures coil and leaf springs. It is a market leader in this niche segment and supplies to prominent customers such as Indian railways, BHEL, BEML, etc. Moreover, Siemens Germany approved its manufacturing facilities for use in its switch gears production. Management aims to focus on exports to increase future profitability. The company reported growing operating profits on growing revenues in the last five years, although this has taken a slight dip in the last twelve months (see below) – with operating profits of over 5cr on revenues of over 35cr.  It operated with a modest net debt load as at 31 st March, 2012. The business is largely dependent on the capital investment cycle for its revenues, which is adversely impacted by high interest rates (such as now). It is also exposed to increasing costs of steel, its primary raw material.  This is, in turn, dependent on the global steel demand/supply scenario.  Management is attempting to enter

Haldyn Glass is in the business of manufacturing glass bottles for use in the liquor, pharmaceutical, retail, food and beverage, and other industries. The product is more hygienic and eco-friendly than substitutes. Management expects good growth in the customer industries – particularly liquor, which has grown at 12% p.a. in the recent past.  They are investing in advanced technologies and bottle-printing and decoration facilities to add value to its offerings to the food and beverage sector. The company reported good growth in revenues and operating profits in the last five years – reporting over 45cr in operating profits on revenues of about 175cr in the year ending 31 st March, 2012.  It operated with minimal net debt as at that date. The company’s order book is dependent on the global and domestic economic cycles. The business requires investment in up to date technologies to remain competitive.  The product is largely a commodity and doesn’t appear to be di

ABM Knowledgeware executes IT projects primarily for state governments. It primarily executes e-governance projects, which enjoys a virtuous circle when government departments see the results of successful implementation with their peers.  The company is currently operating in Maharashtra but plans to expand to other states. The company reported consistent growth in revenues and operating profits in the last five years – reporting over 20cr of operating profits on over 90cr of revenues in the last twelve months.  It operated with a net cash balance of just under 15cr as at 31 st March, 2012. The primary risk facing the business is government apathy and/or spending cuts, which curtails projects and reduces revenues. The business also faces substantial risks in technology obsolescence in meeting client objectives, and acquiring and retaining skilled manpower at reasonable costs. Other risks include execution difficulties (leading to cost overruns), lack of citizen

Sicagen is a trading outfit based out of Chennai. It is primarily engaged in trading commercial vehicles and construction materials.  It is a distributor for Tata Motors. It reported marginal operating profits on growing revenues over the last five years – reporting over 25cr in operating profits on revenues of 900cr in the year ended 31 st March, 2012.  It operated with a moderate debt load relative to its current assets as at that date. The company reported 38cr in market value of quoted investments as at 2011 year-end – this would be lower as at 2012 year-end but not by too much. The reported assets on the balance sheet are largely comprised of sundry receivables and other loans and advances – their recoverability is unknown from publicly available information. The business is totally dependent on the interest-rate environment – being adversely exposed to high interest rates, crimping demand for its products. It is also impacted by the cyclical factors fr

Veljan Denison manufactures engineered fluid power products such as hydraulic motors, pumps, valves, etc. that cater to the infrastructure, construction and other manufacturing industries. The company reported reasonably good growth in operating profits and revenues in the last five years – reporting over 20cr in operating profits on revenues of over 80cr in the year ended 31 st March, 2012.  It operated with a very modest debt load as at the end of the last financial year. The demand for the company’s products is exposed to the infrastructure and construction cycles, which are linked to the economic cycles.  Therefore, being a relatively small player, its revenues are potentially exposed to disturbing declines during economic slowdowns. The company is subject to competition from both domestic and foreign competitors – who are both entering as well as expanding in the Indian market.  The operations are adversely impacted by high steel/pig iron prices, which are the

Salora International is engaged in the distribution, supply, and after-sales service of consumer electronics, IT, Telecom, televisions, and other products. It supplies products for brands such as Acer, Motorola, MTS, Sharp, etc. along with some Chinese manufacturers.  It also supplies televisions under its own brand name ‘Salora’. The company reported declining operating profits (now losses) on declining revenues over the last five years.  It reported net losses of 8cr on a revenue base of just over 400cr in the year ended 31 st March, 2012.  Despite the losses, the debt load appeared moderate in relation to its current assets – assuming that its receivables and inventories were valued conservatively. The business is exposed to the interest rate cycle – with high rates adversely impacting both the servicing costs of the company’s debts and consumer demand i.e. those who finance purchases with loans. The business is also exposed to the considerable risk of technologi

Solitaire Machine Tools manufactures ‘Centreless Grinder’ machines for use in the automobile, textile, steel, bearings and precision engineering industries. Management believes there is opportunity to increase sales on the back of manufacturers looking to outsource auto ancillary products from India. The company reported stable operating profits on reasonably stable revenues – reporting just under 3cr of operating profits on revenues of about 14cr in the last twelve months.  It operated with no net debt as at 31 st March, 2012. The company sold 37 machines in FY 2011 as compared 24 in the previous year – but this figure is likely to come under pressure in the near future as the business is adversely impacted by a high interest-rate environment (such as currently), which dampens customers’ capital investment plans. The company is also heavily influenced by government policies- particularly in the areas of import/export and incentives for investments, which can affect