Investing Reflections On India

Interfit Techno is in the business of manufacturing stainless steel pipe fittings, ball valves etc. for the construction industry.  It generated 85% of its revenues from the Middle East. The company has reported marginal operating profits in last five years with a recent spurt in revenues and profits in the last couple of years – reporting about 3cr of operating profits on revenues of about 25cr.  It operated with a moderate debt load. The company, however, had accumulated losses over the last ten years – a former BIFR case - and it is only on its way to working itself out of it.  This is a serious adverse point against the competence of management in this business.  Minority shareholders need to convince themselves that the underlying causes of poor past performance have been remedied for good rather than covered up by a temporary spurt in business activity. Moreover, it generated negative free cash flows in aggregate over the last five years primarily as a result of large

Prima Plastics is in the business of manufacturing Moulded Furniture and Aluminium Composite Panels.   It supplies usually to retail outlets.   It also owns a profitable joint venture in Cameroon. The company has reported reasonably consistent growth in revenues and operating profits over the last five years.   It reported almost 6cr in operating profits on revenues of almost 60cr in the last financial year while employing modest net debt of about 3cr. The business is exposed to high risk of poor performance in recessionary conditions.   It is also exposed to crude oil and aluminium price spikes, polypropylene (plastic) supplies - mainly dependent on Middle East capacity, heavy competition incl from China, price competition in low-value products, foreign exchange risks on imports as well as exports, etc. Management initiated dividends in FY’10 and continued it in FY’11.   Its continuance would appear to depend on the impact of business risks mentioned above.