Investing Reflections On India

Apar Industries operates in the power sector manufacturing Transformer Oil and Conductors. The company is one of the leading companies in both segments and revenues are split about equally among both.  Management expects to benefit from the myriad steps taken by the government to build up power infrastructure and address the persistent demand/supply gap in this sector. The company amalgamated ‘Uniflex Cables’ into its business in the last financial year.  This was considered a sick industrial company under the BIFR.  See discussion of cable business below. The company reported reasonably steady growth in consolidated revenues and operating profits considering the nature of the industry – reporting about 180cr in operating profits on revenues of about 3,000cr in the last financial year.  It employed minimal debt to finance its operations. The business is generally exposed to rises in commodity prices, particularly those of non-ferrous metals and base oils, which form

Balasore Alloys is in the business of manufacturing high carbon ferro chrome used as a raw material in stainless steel production and other alloys steels. The company owns several chromite and manganese ore mines in India to source its raw material supplies and is looking for more sources domestically and internationally.  It is in the process of setting a captive power plant with a joint venture partner to secure its power needs.   It also intends to expand production capacities in the near future. The company is a corporate debt restructuring (CDR) case as a result of past inability to repay debt.  Therefore, it is hampered in carrying out investing and financing activities unless it obtains permission from its bankers. The company reported somewhat volatile operating performance over the last five years – it reported over 100cr in operating profits on revenues of over 620cr in the last twelve months.  It employed a moderate debt load to finance its operations (as at 3

Murudeshwar Ceramics manufactures ceramic and vitrified tiles. The demand scenario appears to possess tailwinds such as improving living standards, government emphasis on housing, rural penetration etc.   The company has also outsourced some manufacturing by licensing its brand name that has helped save costs and may improve competitiveness. The company reported somewhat volatile operating performance over the last five years – reporting about 50cr of operating profits on revenues of about 200cr in the last twelve months.  It’s debt load of 140cr (at 31 st March 2011), although not comfortable, appeared to be manageable particularly in relation to net current assets. The business is exposed to changing consumer preferences and high competition - including the unorganised sector, which adversely impacts the retail market that forms the largest tiles market segment.  The business model is characterised by heavy capital investment – both in fixed assets and working cap

Tirupati Starch and Chemicals manufactures maize starch and dextrose products. Maize Starch finds applications in basic industries such as textiles, paints, detergents, paper, ceramics, pharmaceuticals etc. and Dextrose is used primarily in the food processing and pharmaceutical industries.  It has two plants located at Indore that is currently running at full capacity. The company reported steady performance in the last five years – reporting about 6cr in operating profits on revenues of about 50cr in the last financial year.  It employed a moderate debt load to finance its operations. Management haven’t discussed the business and its prospects in any intelligent manner to the company’s shareholders, which is a definite negative in their appraisal. The business is exposed to increases in maize and raw starch price as well as power costs arising from power shortages. The audit report contains several qualifications – a lot of which question the accuracy of the in

BLB operates in the brokerage industry serving retail customers. It also does arbitrage and commodity trading for its own account and real estate investing through a subsidiary. The company reported erratic performance over the last five years including net losses that have reduced net worth during market downturns.  It reported net losses on revenues of about 130cr in the last twelve months.   However, it also reported a net worth of 122cr (at 30 th September, 2011) consisting of 80cr of net current assets and just over 20cr of investments, which should have a minimum market value of 5-10cr on quoted companies and mutual funds unless the composition has changed significantly from 31 st March, 2011. The business suffers from various issues such as lack of retail interest in the stock market, severe competition, increased technology outlays, increased regulations and compliance costs, etc.  It is likely to downsize its operations from that existing in the past.

Trans Freight Containers was operating in the business of manufacturing containers. The company currently has no operating activity and management is considering diversification into other businesses such as specialised fabrication of multi-purpose accommodation units.  It has had no operating activity for the last several years. The container business was subject to heavy Chinese dumping that made the business so unprofitable it had to stop operations altogether.  The company does, however, have fixed assets – building, estate, plant and machinery along with loans and advances (earning interest income), some inventory of marine cargo containers and cash balances.  It reported its net worth at just over 30cr alongside a debt load of 10cr, which is covered by cash balances of 13cr (as at 30 th September, 2011). Management has been selling land holding as well as liquidating fixed assets and inventories, and recovering loans in the last couple of years.  They have

Hira Ferro Alloys is in the business of manufacturing ferro alloys – mainly silico manganese.  They are used as intermediates in manufacturing steel, acting as deoxidant and alloying agents. The company recently acquired an 8.5mw biomass power plant as a going concern.  Apart from servicing their ferro alloys business, they intend to scale up sales of power in the short-term market through merchant sales.   Management intends to focus on the power segment in the future since they believe it will provide a more predictable and sustainable earnings model.  The company reported erratic revenues over the last five years where last year’s revenues appear to be around the mid-point of about 150cr.  It has, however, been consistently profitable – reporting 35cr of operating profits in the last financial year.  It employed a moderate debt load to finance its operations. The fortunes of the ferro-alloy business are tied to those of the steel industry. Consequently, it is expo

Mukand operates in the specialty steel and industrial machinery segments. The company supplies steel to the automotive industry; and is one of the leaders in manufacturing heavy duty electric overhead travelling cranes - with the one of the largest domestic capacities in its category.  It works with its group company Mukand Engineers in bidding for projects.   It also aims to jointly bid with IHI Japan in the future. The company has recently expanded steel capacities, which may lead to higher revenues in the near future. The company reported reasonably steady performance over the last five years – reporting operating profits of 200cr on revenues of 2,500cr in the last financial year.  It employed a debt load of over 1,750cr (as at 30 th September, 2011), which is high relative to its earnings and although it is backed up by assets, it may cause discomfort to shareholders under tight monetary conditions instilled by the RBI. The fortunes of the business are tied to the

Cinevistaas produces television serials. It produces a handful of serials (mythological, youth-related, etc.) for well-established television channels such as Sony, Star Plus, Star One, Channel V, Sun TV etc.  It entered the Southern market (Karnataka, Tamil Nadu, and Kerala) for the first time in the last financial year. The company reported declining profits on an erratic revenue base over the last five years – reporting net losses on revenues of about 30cr in the last twelve months.  It employed minimal debt to finance its operations. The primary risks impacting the business are the fickle and dynamic tastes of the viewers exacerbated by intense and innovative competition for viewing time.  This doesn’t bode well for predictability of the business’ earnings. Another major risk impacting the business is its low bargaining power with established channels that puts it at a disadvantage in a multitude of ways from responsibility for failures and pricing per episode (w

Morgan Ventures operates in the businesses of investments, windmill operation, and trading of capital equipments. It places funds with other companies through inter-corporate deposits, bills discounting facilities etc. It operates a wind project with 4,275mw generation capacity that is eligible for earning carbon credits under the UN framework.  However, this business is seasonal and exposed to uncertain wind patterns. It also acquires capital equipment in liquidation auctions and resells it as is or as scrap.  Future business would depend on the availability of liquidation auctions and similar opportunities.  Moreover, demand for capital equipment is cyclical and may be substantially diminished in down years. The company reported declining performance over the last five years – reporting net losses in the last twelve months on revenues of just over 2cr.  It employed only a moderate debt load to finance its operations. Management’s focus in the future is likely t

Haryana Leather Chemicals produces leather chemicals for tanners to manufacture leather products.  It also has a small acrylic division. The company is reasonably well-entrenched in India and China, and caters to all segments of the leather industry.  Indian tanneries are now competitive with European manufacturers on quality and compliance, and have relative low cost advantages, which bodes well for the company’s future prospects.  The company is attempting to constantly expand its customer base to countries such as Indonesia, Vietnam, Ethiopia etc.  The company reported consistent growth in revenues and operating profits over the last five years – reporting just under 3cr of operating profits on revenues of over 32cr in the last twelve months.  It employed no net debt to finance its operations. The business is impacted by declining raw hide availability and exposed to increasing costs of raw materials such as basic organics, crude oil, etc.  This leads to significant p

Shree Steel Wire Ropes manufactures stainless steel wire ropes and regulating equipment for Indian Railways (IR), its main customer. The company has developed new products for IR in the past, for which it has received approvals for production and supply.  The company is currently IR’s regular supplier in this product segment. The company reported stable performance over the last five years – reporting about 1cr of operating profits on revenues of 5cr in the last financial year.  It employed no net debt to finance its operations. However, the company can expect severe competition from new entrants as and when IR’s requirements increase.  Needless to say, the company is exposed to substantial customer concentration risk since IR is its main customer – any cancellation of business will practically wipe out existing revenues.

Ratnabali Capital Markets offers brokerage and depository services, and also trades on its own account. The company is a member of the BSE, NSE and MCX, and depository participant (DP) with the NSDL.  It operates in the capital, futures and options (f&o), and currency markets. The company appears to have morphed its business model from brokerage services to trading and therefore, current performance doesn’t appear to be comparable to the past – it reported marginal net profits of 2.5cr on revenues of over 700cr in the last twelve months.  It employed minimal debt relative to assets to finance its operations (at 30 th September 2011). The business is primarily exposed to low retail participation in the capital markets, which is largely sentiment driven and driven by a fear of falling prices and even stagnation.  Moreover, there is significant competition in this industry and rapid technological changes that have reduced barriers to entry and increased the need for te

Narendra Properties operates in the building construction industry.  It purchases land and converts them to residential houses, complexes, flats, commercial space (on selective basis) primarily near Chennai’s IT corridor.   There appears to be a lot of unmet demand for residential space from the working population. The company reported reasonably stable performance over the last five years – reporting about 3cr of operating profits on revenues of 11cr.  It did not employ any debt in its operations. The business is tied directly to general economic activity and more specifically to the fortunes of the IT sector in Chennai.  It is subject to the interest-rate environment, which impairs demand for house properties in a high interest-rate environment.   Moreover, its performance is dependent on its ability to execute projects in a timely fashion – the absence of which will lead to the disappearance of earnings. The business is subject to heavy competition in the real est

Futura Polyester operates in three segments of the polyester industry – polymers, performs, and polyester staple fibre (PSF). The company has reported operating losses in the recent past.  Management focus, however, appears to be on value-added products including environmentally friendly “green” products.  Management expects PSF, PET resin and PET Preform segments to witness demand growth as a result of various factors including MNC shift from glass to PET bottles, consumer shift from tap to bottled water, etc. The company reported declining operating profits on a reasonably stable revenue base over the last five years – reporting operating losses in the last twelve months on revenues of just over 400cr.  It employed net debt of about 150cr at last financial year-end, which appears excessive relative to cash flows.  If operating conditions don’t improve, management may be able to liquidate long-term assets to repay debt but the current situation doesn’t appear too rosy f

Indag Rubber manufactures tyre retreading products, which are used to enhance tyre lives at 25-30% of the cost of a new tyre. The company has an established distribution network.  Tyre price increases, rubber deficits, improved road quality, reduced overloading etc. may boost the retreading industry over the long run as its attractiveness would grow proportionately in that scenario.  The company is also attempting to develop new tread compounds and patterns to increase tyre fuel efficiency and eco-friendliness, which may increase competitiveness. The company reported consistent growth in revenues and operating profits over the last five years – reporting about 20cr of operating profits on revenues of about 180cr in the last twelve months.  It operated with a minimal debt load (as at 30 th September, 2011). The business is exposed to natural and synthetic rubber price increases, which constitutes about 70% of production cost since these cost increases cannot be passed on

Premco Global produces elastic tape for the garment industry. The company is a leading manufacturer of elastic tape.  It expanded capacities in the last financial year along with a new unit at Vapi.  Management expects production increases to match a growing sales order book. The company has reported steady revenues and operating profits in the last five years – reporting about 3cr of operating profits on revenues of about 40cr in the last twelve months.  It employed a moderate debt load to finance its operations (as at 31 st March, 2011). The business is dependent on the garment industry fortunes.  It is exposed to increases in crude oil and rubber, which are major raw materials in its operation.  It is also adversely impacted by a strengthening INR, which affects its export competitiveness. The nature of the business is such that it is vulnerable to high competition including from local manufacturers; this despite the company’s track record, reputation and custom