Skip to main content

Asahi Infrastructure


Asahi Infrastructure is in the business of constructing low cost and affordable housing.

Government policy to enter into Public-Private Partnerships (PPP) and Build Operate Transfer (BOT) agreements to address housing and infrastructure (water, sewer etc.) shortages bodes well for future work in the industry.  Moreover, the residential segment constitutes 75% of the growing real estate market and the trend toward greater urbanisation is further increasing housing demand.

The company plans to add fly ash bricks and pre-cast ferro-cement capacity in the near future.

Management issued warrants to promoters and raised capital of 30cr in the within the last two years, which has materially enhanced the scale of the business.  The company appears to have received several work orders in the last year well in excess of 200cr.  However, it hasn’t reported balance sheets or cash flow statements within the last year.

Prior to raising capital, the company reported equity share capital of only about 4cr and after, it rose to about 34cr (as at 31st March, 2010).  Hence, past performance on a low capital base is largely irrelevant to expected future performance.

The business is primarily exposed to the real estate cycle and intense competition in its field.  It is also exposed to the fortunes of the IT industry (driving demand), contractual/legal risks, environmental liabilities, natural catastrophes etc.

Since management don’t have a track record operating at this scale, partnering with them appears to be akin to taking venture-capital type risks that we are unable to evaluate intelligently.

Comments

Popular posts from this blog

On The Radar: India's Small-Cap Equities (Concluded)

We have been running a series of articles titled ‘Under The Radar: India’s Small-Cap Equities’ beginning in December 2011 - and followed up twice - with the last article in December 2013. We would like to conclude this series after updating the small-cap index level and returns, comparing it to our expectations ex-ante, and analysing the current scenario.  Following this, we have also outlined where we may take this blog in the future. The small-cap index closed at 11,087.07 on December 31 st , 2014.  This compares to a level of 6,150.65 in our last article – resulting in an advance of over 80% to date. This is a handsome absolute return by any standard, particularly compared to Indian government bonds, which yielded around 8-9% for the period.  This justifies the conclusion at the end of our previous article that “small-caps in India offer among the most attractive bargains during any time since 2006 and certainly in the entire Indian stock market today”. Of cour

Lakshmi Energy

Lakshmi Energy is in the business of processing and distributing rice to domestic and export markets.   It is also engaged in generating biomass fuel. The company has reported growth in revenues and operating profits over the last five years reporting about 200cr in operating profits on about 1200cr of revenues in the last financial year (ending 30 th September, 2010).   It operated with a relatively high net debt load of 780cr as at that date. The business, however, generates weak operating cash flows as a result of high investment in its working capital. The business is subject to adverse changes in government regulations/policies on procurement pricing, non-Basmati exports etc.   It is monsoon-dependent, subject to adverse changes in foreign exchange rates (for exports) and prone to heavy competition in its operations. Dividends have been on a declining trend for the last five years (probably as a result of above cash flow problems).   Management appear to be making a valiant

Under the Radar: India’s Mid-Cap and Small-Cap Equities

Indian stock markets have been one of the worst performers in 2011 – worse than their BRIC peers, worse than the rest of Asia and far worse than the US with the leading indices declining about 25% during the year.  Foreign investors in India have also suffered substantial declines of nearly 20% in INR currency value. There appear to be several reasons for the market’s dislike for Indian equities in 2011, which include persistent inflation (including food inflation, which constitutes the major proportion of the typical Indian household), political paralysis (e.g. rollback of foreign investment in retail etc.) and global concerns about the solvency of several Eurozone countries. As a result, estimated GDP growth for the next financial year has been revised downwards from about 8% earlier in the year to about 6% now - with many market commentators wondering whether this rate of growth is India’s ‘new normal’.  This is still, however, substantially higher than global average.