Investing Reflections On India

Jayabharat Credit is a non-banking finance company (NBFC) in the hire purchase/leasing business in the transport segment. It is allowed to accept public deposits in its business. The balance sheet is financed with approximately 30% equity and 70% debt of which, half consists of short-term funding and balance consists of inter-corporate deposits.  This was used to finance loans and advances of about 57cr (constituting net current assets of 13cr) and government securities of about 5cr as at 31 st March, 2011. The debt was rated ‘C’ by a reputed credit rating agency and hence, is now required by the RBI to reduce the level of public deposits from the 19cr (as at 31 st March, 2011) to under 10cr, thereby requiring a material reduction in business activities, which will reduce expectable future profits.  This is already reflected in a drop in income from about 10cr to 6cr (in the trailing twelve months) and net losses in place of profits in the past. The business is spe

Flex foods is in the business of producing packaged food – primarily mushrooms but also herbs, vegetables, fruits in frozen, processed, air-dried and similar formats.  The industry is expected to grow at 10%-15% p.a. over the next five years or so. The company has reported fluctuating operating profits on reasonably stable revenues – reporting 5cr of operating profits on revenues of 44cr in the last financial year.  It employed minimal net debt to finance its operations. The business is primarily exposed to rainfall patterns impacting vegetable prices – herbs, straw etc.  It is also exposed to risks of intense Chinese competition in this area, high power tariffs set by the government, political/economic stability of countries exported to, INR appreciation impacting its export revenues. Management has also made loans to several companies, which appears a little out of whack considering the nature of the company’s business.

Gowra Leasing is a 19-year old NBFC providing largely secured lending to the private sector.  It is classified as a ‘loan’ company under RBI regulations and not allowed to accept public deposits for financing. The company had 12cr in loans and advances as at 30 th September, 2011 and net current assets of about 10cr.  It had practically no net debt as at that date to finance its operations.  The company reported steady growth in income and profits – reporting about 2.5cr of pre-tax profits on income of 3.4cr in the last financial year and took a slight dip on both aspects in the six months to 30 th September, 2011. The business is exposed to general risks of non-performing assets, interest rate hikes, intense competition etc.