Investing Reflections On India

BGR Energy operates in the power and capital goods segments and is in the business of constructing boilers, turbines and generators for coal-based thermal power plants.  It currently has about 7 or 8 major power projects running including overseas projects.  It executes major contracts for companies, PSUs and government agencies.  The company reported rapid growth in revenues and profits over the last five years – reporting about 540cr of operating profits on revenues of about 4,800cr.  It operated with a slightly uncomfortable net debt ratio, with net debt exceeding book equity (as at 30 th September, 2011) – presumably as a result of the current distress in the power sector (discussed below). The business suffers from issues relating to coal availability, environmental concerns impeding construction activities and State Electricity Board (SEB) insolvencies.  It is dependent on government-set power tariffs.  Since its work is project-based, revenues are lumpy and i

Rasi Electrodes is in the business of manufacturing welding electrodes and trading in copper coated mild steel (CCMS) wires. The company has a reasonably good brand image in certain of its segments. The company has reported reasonable growth in revenues over the last five years but the operating profits have remained largely the same.  It reported about 2cr of operating profits on revenues of about 21cr in the last financial year while employing modest financial leverage. The business is exposed to rising steel and rutile prices.  It also incurs heavy working capital investments resulting in hits to its operating cash flows.  Moreover, it will require heavy capital expenditure in the future as a result of PSU customers requiring it to operate with more of its own manufacturing facilities.  This will result in lower free cash flows, at least over the next few years. It is a net importer and hence, exposed to a weakening INR.  Moreover, it is still trading CCMS wire an

Filatex is a manufacturer of Polyester Filament Yarn for textile and other applications. The company has reported consistent growth in revenues and operating profits over the last five years.   It reported operating profits of over 40cr on revenues of almost 500cr in the last financial year while employing moderate net debt of just over 64cr. The business is exposed to the risks of viable substitutes such as cotton and other fibres when they sell at attractive prices.   It is also exposed to raw material price spikes, high competition (imports as well as domestic) and requirement for heavy capital expenditure to maintain (presumably) competitive position in a capital-intensive industry.

APM Industries is in the business of producing spun yarn fibre – it is primarily an exporter of man-made spun yarn fibre. The company hasn’t shown spectacular growth in revenues over the last five years but has reasonable operating profitability given the industry it operates in.  It reported 30cr in operating profits on 240cr of revenues in the last financial year.  It operated with a reasonably high debt load of 60cr, which would sensitise its net profitability in the event of high interest rates (as we have now) and during industry/economic downturns. It is exposed to the persistent cyclicality in the textile industry marked by consistent oversupply.  Moreover, it is operating in a highly capital intensive industry and heavily subject to government regulations on imports/exports/duties/taxes etc.  It is also exposed to crude oil price spikes (impacting synthetic rubber used in man-made fibre), adverse foreign exchange movements (export-driven revenues), and a scarcity of trained

The company is in the business of manufacturing ‘fluid couplings’, which are power transmission devices used in various basic industries such as thermal power plants, steel, cement, and other infrastructure-related businesses. The company has shown reasonable growth in revenues and profits in the recent past with no net debt as at 31 st March, 2011.  It generated about 2.5 crores in net profits on revenues of 18 crores in the last financial year.  The company was, however, a victim of financial restructuring several years ago as a result of severe losses (pre-2000) and erosion of reserves.  It has now recovered its former losses and built up its net worth as a result of the recent good performance. Management has deployed retained earnings at reasonably attractive rates of return in the past and recently declared a dividend of INR 1/share on its equity shares. The company has apparently expended efforts to build its brand in the Australian and New Zealand markets apart from the do