Investing Reflections On India

Cheviot is in the business of manufacturing jute sacking products for packaging (e.g. food grains, sugar etc.) and selling of jute yarn to domestic and export markets. The company has reported stable revenues and profits in the last five years apart from the last financial year, which was abnormally good as a result of higher jute yarn realisations in overseas markets on the back of short supply that lasted only the first six months of the last financial year.   The company has reported average operating profits of about 28cr on revenues of about 180cr in the last five years. It generated the above results with no net debt and owned liquid securities approximating 100cr in market value as at 31 st March, 2011. The business is primarily exposed to the risks of cheap imports from Bangladesh and removal of favourable government policies on jute packaging requirements (due to the industry’s large labour force) because of its high price relative to alternative packaging mate

JK Paper is in the business of manufacturing paper/paper boards. It holds a leading competitive position in the copier, coated and packaging board segments. The company has reported consistent growth in revenues and operating profits over the last five years – reporting 260cr in operating profits on revenues of about 1,400cr in the last financial year while operating with moderate net debt of about 500cr. The business is subject to the risks of wood and pulp availability as well as their price rises.  It is also exposed to the risks of cyclicality (periods of industry oversupply), Chinese dumping, poor infrastructure and therefore imports from nations with well-developed infrastructure, lack of corporate farming in the country, lack of experienced personnel, interest rate rises (affecting loan costs) and GST (tax) increases.

South India Paper is in the business of manufacturing paper/paper boards for packagaing and the cultural segment (i.e. non-newspaper). The company has reported reasonably stable revenues and operating profits over the last five years – generating about 25cr in operating profits on 167cr of revenues.   It operated with minimal net debt of 13cr as at 31 st March, 2010. The business is primarily exposed to the risks of government tariff flip flops (particularly lowering of import tariffs) and emphasis on small scale industry development.   Moreover, it is difficult to integrate across the value-chain in the paper industry due to arbitrary government policies at each segment.   This also makes it difficult to expand capacities since it generates low expected returns on capital and hence, is not remunerative.   Furthermore, the paper industry as a whole is expected to grow at below-average rates of 7% per annum (at best).

PG Foils is in the business of manufacturing aluminium foils and supplying to the retail and pharmaceutical sectors for packaging as well as long shelf-life benefits. The company has reported reasonably stable revenues and operating profits over the last four years – generating about 14cr in operating profits on revenues of about 140cr. It employed negligible net debt as at 31 st March, 2010. The business is exposed to the risks of aluminium price spikes, cyclicality (incl periods of excess capacity) and adverse movements on currency rates. Management appears to employ a niggardly policy towards declaring dividends considering the amount of net profits it generates - presumably for retaining profits for business expansion.  The problem, however, is that management have not employed capital efficiently in the last few years as reflected in poor profitability ratios – shareholders ought to demand an accounting by management for this inefficiency with their money and ought