Investing Reflections On India

Puneet Resins is in the business of manufacturing and trading rubber products for supply to the non-tyre segment of rubber users. The sales mix of trading revenues to manufacturing revenues varies widely from year to year depending on demand conditions. The company has reported consistent growth in revenues and profits over the last five years.   It reported operating profits of 7cr on revenues of about 50cr in the last financial year.   It operated with no net debt. The business is subject to price spikes of its raw materials (PVC, Synthetic Rubber etc.).   It is exposed to further weakening in its negotiating power with suppliers as a result of increasing importance of competing (petroleum-based) user industries.   It also has apparently little pricing power with its end customers.

Rathi Bars is in the business of manufacturing CTD/TMT steel bars and ingots/billets. The company hasn’t reported any significant growth in revenues over the last five years but reported reasonably stable operating profits considering the cyclical nature of its industry.   It reported operating profits of about 11cr on revenues of around 210cr. The business, however, generates weak cash flows from operations as a result of high investment in its working capital. The business is subject to price rises in sponge iron – its main raw material.   It is also dependent on steel industry cyclicality marked by periods of oversupply that has a negative impact on its profits. Management hasn’t declared dividends in any of the last five years presumably to ‘conserve resources’ – this policy appears inappropriate for a company that isn’t deploying funds for profitable growth.

Su-raj diamonds is in the business of exporting cut and polished diamonds/jewellery to the Middle East, Europe, US etc. The company has reported consistent growth in revenues and operating profits over the last five years.   It reported operating profits of about 140cr on revenues of 4,300cr in the last financial year.   It operated with a modest net debt load of about 150cr. The business, however, generates weak cash flows from operations as a result of relatively high investment in working capital. The business is subject to price rises in gold and rough diamonds.   It is generally a low-margin business and hence, risks tend to have a magnified adverse impact on profits.   Furthermore, it is a luxury product implying that it constitutes a discretionary purchase for the customer, which would likely be cut back first in the event of economic downturns resulting in profit deterioration.   It is also subject to adverse movements in foreign exchange rates as a result of its export-ori

Lakshmi Energy is in the business of processing and distributing rice to domestic and export markets.   It is also engaged in generating biomass fuel. The company has reported growth in revenues and operating profits over the last five years reporting about 200cr in operating profits on about 1200cr of revenues in the last financial year (ending 30 th September, 2010).   It operated with a relatively high net debt load of 780cr as at that date. The business, however, generates weak operating cash flows as a result of high investment in its working capital. The business is subject to adverse changes in government regulations/policies on procurement pricing, non-Basmati exports etc.   It is monsoon-dependent, subject to adverse changes in foreign exchange rates (for exports) and prone to heavy competition in its operations. Dividends have been on a declining trend for the last five years (probably as a result of above cash flow problems).   Management appear to be making a valiant

Sujana Universal is in the business of manufacturing steel castings, bearings, appliances etc. with other divisions operating in the fields of infrastructure, share trading and other activities. The company has shown high growth in revenues, which haven’t translated to similar increases in operating profits.   It reported 70cr of operating profits on revenues of about 3000cr in the twelve months ending 31 st March, 2011.   It operated with a relatively high net debt of about 200cr. The business, however, generates weak operating cash flows as a result of heavy investment in its working capital. The primary risk with this business is the lack of focus in its business activities – with management time devoted to activities seemingly unrelated to their primary business (steel castings) such as real-estate, share trading etc. and a host of unquoted subsidiaries engaged in unknown activities.   In its steel castings business, it is blighted by the cyclicality of the industry with pe

DHP India is in the business of manufacturing LPG Pressure Regulators. The company has shown reasonable growth in revenues and operating profitability in the last five years – reporting about 4cr in operating profits on 24cr of revenues in the last financial year.  It operated with modest leverage of 3cr (as at 31 st March, 2010). The company, however, has not generated much free cash flows (operating cash flows – investing cash flows) in the recent past. It is exposed to price rises in its raw materials (brass, zinc etc.) and seems to operate in a low-value product category that has infrequent demand (from an individual customer’s perspective).  It is also heavily exposed to foreign exchange movements (US$ and GBP) since it exports all of its finished products.

APM Industries is in the business of producing spun yarn fibre – it is primarily an exporter of man-made spun yarn fibre. The company hasn’t shown spectacular growth in revenues over the last five years but has reasonable operating profitability given the industry it operates in.  It reported 30cr in operating profits on 240cr of revenues in the last financial year.  It operated with a reasonably high debt load of 60cr, which would sensitise its net profitability in the event of high interest rates (as we have now) and during industry/economic downturns. It is exposed to the persistent cyclicality in the textile industry marked by consistent oversupply.  Moreover, it is operating in a highly capital intensive industry and heavily subject to government regulations on imports/exports/duties/taxes etc.  It is also exposed to crude oil price spikes (impacting synthetic rubber used in man-made fibre), adverse foreign exchange movements (export-driven revenues), and a scarcity of trained