Investing Reflections On India

Austin Engineering Company (AEC) is in the business of manufacturing bearings for use in various basic industries such as automotive, defense, steel, cement, sugar, paper, agro-machinery etc. AEC has been operating in this industry for the last 30+ years and has an established brand name (‘AECL’) in the domestic bearing market with a wide distribution network and an established customer base. The company has reported reasonably stable operating profits on similarly stable revenues over the last five years barring the last financial year when it reported depressed operating profits of 6cr on revenues of about 80cr.   Previously, it reported average operating profits of about 12cr in the last five years.   It employed minimal net debt (4cr) to generate these results.   Due to the nature of its business, which requires relatively high stocking of inventory, the company has to invest in its working capital that negatively impacts its operating cash flows – but not too signif

The company is in the business of manufacturing photo-sensitised materials (X-Ray Films and Accessories) and supplying of other related products for the healthcare industry – particularly for hospitals and diagnostics centres. The company has reported profits in each of its last five years with about 7 crores of operating profits on 168 crores of revenues in the last financial year.  However, it has a relatively high level of net borrowings amounting to over 25 crores (as at 31 st March, 2011) exposing it to not insignificant downside risks should the business encounter operational bumps along the road. The company also has a relatively high investment in working capital resulting in cash outflows from operations – with cash tied up in inventories and receivables. It apparently has a large distribution network across India enabling it to gauge customer demand and supply them effectively. The company faces a significant business risk in the long-term obsolescence of X-ray technolo