Investing Reflections On India

Elnet Technologies is in the business of providing infrastructure to the business process outsourcing (BPO) industry. It is engaged in letting commercial office space to software and BPO firms in Chennai.  Despite the recent economic slowdown, these industries are still exhibiting good growth rates. The company reported stable operating profits on a stable revenue base – reporting about 9cr in operating profits on revenues of 17cr in the last financial year.  It did not operate with a net debt position as at 31 st March, 2012. The business is naturally exposed to the fortunes of the software/BPO industries.  These are, in turn, exposed to global economic slowdowns, adverse western policies on outsourcing, demand uncertainty, etc. It is also exposed to oversupply in the industry where large scale commercial space availability is putting pressure on rates per sq ft and occupancy levels.

Arihant Capital is in the business of providing integrated financial services. The company is primarily an equity broker but also provides commodity, currency, and bond brokerage as well as merchant banking, financing, distribution of financial products, financial planning, and depository services to over 100,000 customers across the country in the retail, corporate, and institutional customer segments. The company has reported fluctuating operating performance in the last five years roughly corresponding to the movements in the financial markets.  It reported 16cr in operating profits on revenues of nearly 60cr in the last financial year, while operating with net cash and liquid assets of about 50cr as at 31 st March, 2012. The business is primarily exposed to low equity brokerage volumes and declines in cash volumes during times of indifferent financial market sentiment, which usually parallels periods following panic and may be protracted.  Further, retail customers

Panasonic Energy manufactures Dry Cell Batteries. The batteries fall under two main categories – Zinc Carbon and Alkaline (aimed at the high income segment).  All batteries are now sold under the “Panasonic” brand name.  The company recently commenced manufacturing of Flashlights to complement the battery business. The company reported erratic performance in the last five years – reporting 5cr in operating profits on revenues of over 180cr in the last financial year.  It held a net cash position of over 20cr as at 31 st March, 2012. Management seems optimistic about the business as a result of very low consumption of batteries per person in India relative to global standards.  They also assert that the concepts of compactness and portable energy needs should spur demand for battery appliances and hence, batteries. Demand growth, however, is very low at about 4% per year – and some markets are even declining.  Moreover, changes in consumer usage patterns of gadge

Garware Polyester manufactures polyester films, which has a variety of applications in packaging, insulation, imaging, etc. among several others.  The company is the largest exporter of polyester films based out of India and is one of only two global manufacturers producing dyed polyester films.  It owns the “Global” brand of polyester films, which is prominent in the US and now introduced successfully in the Indian market. It produces polyester films in three broad categories, which are – plain (e.g. shrink film), sun control (used in automobiles), and thermal films, which is a recent addition. Management is looking to invest in research and development for launching new branded products in the solar film market; as well as market window films for offices, commercial buildings and malls to the premium segment of that market. The company reported reasonably stable performance over the last five years but has dipped in the last twelve months (see below) – reporting ju

MVL Industries operates in the consumer electronics (CE) industry. The company largely supplies televisions, vcd/dvd players and the like.  It owns the ‘Media’ and ‘MVL’ brands. The company operated with a high debt load in the last financial year - which comprised largely of secured loans from banks. The company also owns quoted investments – the largest of which are holdings in MVL Limited, which has seen a decline of over 75% in value over the last year – resulting in market value of holdings amounting to about 40cr. The balance sheet largely comprises of receivables although they are reported to be less than six months old.  It is difficult to ascertain their recoverability from publicly available information. However, the company has reported consistent growth in operating profits and revenues over the last five years – reporting over 30cr in operating profits on revenues of over 470cr in the last financial year.  The interest expense, arising out of the abo

Mafatlal Industries operates in the textile industry engaging in spinning, weaving, and processing of textiles. The company was de-registered from BIFR in 2011 as a result of restoring its net worth and paying down debts.  It did this by selling one of its properties to the Piramal Group for 600cr and using the proceeds to pay off outstanding debt. The balance sheet revealed a much more comfortable debt position as at the end of the last financial year as compared to the year before. Management now plans to incur capital expenditures of 65cr for enhancing processing capacities along with 10cr for power generation.  They also intend to raise additional bank loans to finance these capital expenditures. The company reported large operating losses in nine out of the last ten years – enough to wipe out equity and then some – landing it with the BIFR.  Apparently, it is stuck with old equipment and high labour costs.  This isn’t helped by aggressive competition from low-co

Windsor Machines manufactures capital equipment machinery for use in injection moulding and extrusion activities – both dividing sales equally. It has technical collaboration with Italian and German manufacturers for producing its plastic processing and pipe machines. The company reported accumulated losses in the past as a result of a combination of poor aggregate operating performances and an extraordinarily high debt load.  Its shutdown was avoided by secured lenders taking a 55% haircut on their loans.  It had a more manageable debt load as at 30 th September, 2011 (if the company can continue to be reasonably profitable). Its debts comprised of unsecured loans from a company and a smaller inter-corporate loan – implying that their terms are likely to be softer than secured loans from banks and therefore subject to less stringent action should operating conditions turn worse. It reported 18cr of deferred tax assets (as at 30 th September, 2011), which have valu