Investing Reflections On India

Anjani Synthetics operated in the textile industry and is in the business of manufacturing printed fabrics. The company has reported growing operating profits on growing revenues over the last five years – reporting 14cr of operating profits on 280cr of revenues in the last financial year. It employed an uncomfortably high debt load in relation to accounting net worth as well as earnings.  Moreover, it has used up significant amounts of cash in aggregate over the last five years (both operationally and for capital expenditure) requiring substantial additional financing including a large equity raising exercise in 2007.  Perhaps management may be considered shrewd for raising equity cheaply during the 2007 bull market – but this didn’t really help the former minority shareholder. The business is exposed to the risk of rising prices of cloth (principal input) as well as adverse foreign exchange movements on its imports of colour and chemicals.  These are in addition to the us

Vinati Organics is in the business of supplying chemicals – specifically it supplies IBB (intermediate) for manufacturing Ibuprofen and ATBS (monomers) used in oil-field recovery, water treatment, acrylics manufacturing etc. The company holds leading competitive positions in its industries – it’s the largest supplier of IBB in the world and second largest supplier of ATBS in the world. The company has reported consistent growth in revenues and operating profits over the last five years – reporting 64cr in operating profits on revenues of over 315cr in the last financial year while operating with modest net debt of about 75cr. The business is exposed to the risks of economic downturns, crude oil price declines, weakening of US$ and lack of skilled labour.

Orient Ceramics is in the business of manufacturing tiles with outlets in North India for supplying primarily to residential customers but also to commercial enterprises such as hotels, shops etc.   The company has reported reasonable growth in revenues over the last five years but operating profits don’t seem to have kept up – generating about 24cr in operating profits on revenues of 290cr in the last financial year.   However, it operated with a high debt load of about 100cr, which substantially increases financial risk during interest rate hikes and/or economic downturns. The business is subject to risks of price rises of its raw materials (clay, chemicals etc.).   It is also exposed to the risks of Chinese dumping and related government attitudes on foreign dumping.   Moreover it is also vulnerable to heavy domestic competition primarily from the unorganised sector.

Asahi Songwon is in the business of manufacturing phthalocyanine pigments for the chemical industry. It supplies to leading chemical companies such as BASF, Clariant etc. The company has reported growth in revenues and profits over the last five years – reporting about 30cr in operating profits on 185cr of revenues in the last financial year.  It operated with a modest leverage of 45cr (as at 31 st March, 2011). The business, however, generates weak cash flows due to high working capital requirements. The business is exposed to the risk of crude oil price spikes since it constitutes a major raw material cost.  Moreover, it is dependent on a few key customers and any loss of customers would seem to have a devastating impact on its earning power.  It is also exposed to adverse foreign exchange movements since over 90% of revenues is comprised of exports.  Furthermore, being a small player in the chemical industry exposes it to global competition in the same product.