Investing Reflections On India

Oriental Carbon is in the business of manufacturing and supplying Insoluble Sulphur to tyre companies (used to vulcanise rubber, particularly in radial tyres) - and Sulphuric Acid used in the manufacture of detergent and inorganic chemicals. The company has reported consistent growth in revenues and operating profits over the last five years – reporting almost 50cr of operating profits on revenues of about 160cr in the last financial year.   It operated with modest net debt of about 40cr. The business is exposed to the risks of Chinese competition, foreign exchange risks (imports and exports), international regulations (EU etc.), poor performance in recessionary conditions, sulphur price spikes (although margins are quite stable), etc.

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.

Vinati Organics is in the business of supplying chemicals – specifically it supplies IBB (intermediate) for manufacturing Ibuprofen and ATBS (monomers) used in oil-field recovery, water treatment, acrylics manufacturing etc. The company holds leading competitive positions in its industries – it’s the largest supplier of IBB in the world and second largest supplier of ATBS in the world. The company has reported consistent growth in revenues and operating profits over the last five years – reporting 64cr in operating profits on revenues of over 315cr in the last financial year while operating with modest net debt of about 75cr. The business is exposed to the risks of economic downturns, crude oil price declines, weakening of US$ and lack of skilled labour.

Goodricke Group is in the business of supplying premium and instant tea to domestic as well as export customers.  It owns 17 tea estates in 3 locations – Darjeeling, Assam and Dooars (North West Bengal). The company has reported consistent growth in revenues and profits over the last five years – reporting about 75cr in operating profits on revenues of over 400cr in the last financial year (ended 31 st December, 2010).  It operated with modest net debt of about 30cr as at 30 th June, 2011. The business is monsoon-dependent and cyclical – based on supplies of tea stocks in Sri Lanka as well as Kenya.  It is also subject to price competition for lower quality teas and faces increasing competition in packet teas.

Hi-Tech Gears is in the business of manufacturing Gear Box/Transmission Equipment and supplies them to two and four-wheelers.   60% of its sales are to Hero Honda and it consistently receives good quality audit scores.   The company has reported consistent growth in revenues and profits over the last five years – generating about 75cr of operating profits on revenues of about 430cr in the last financial year.   It operated with modest net borrowings of about 45cr. The business is exposed to the risks of steel price rises, interest rate rises (vehicle financing), adverse currency exchange rate movements (exports) and risks of technological obsolescence.   It is also exposed to customer concentration risk with such a high proportion of revenues generated from a single customer – any breakdown in that relationship will have a substantial impact on the company’s revenues and profits.

Super Sales is in the business of of manufacturing and supplying cotton yarn, textile and CNC machines via direct marketing.   The company has reported reasonable growth in revenues and operating profits over the last five years – reporting 50cr of operating profits on revenues of about 180cr in the last financial year.   However, it operated with a relatively high debt load of 100cr when considering the nature of its business. The business’ fortunes are tied with the user industries.   Therefore, it is exposed to the risks of cotton price spikes, labour shortage, foreign exchange risks, government policies on imports/exports/subsidies etc.   It is also exposed to heavy domestic and international competition and to frequent power shortages.

Digjam is in the business of manufacturing of Worsted Fabrics and clothes made from wool. The company has reported erratic revenues and operating profits over the last five years – reporting about 8cr of operating profits on revenues of about 80cr.   However, it operated with a high debt load of about 70cr and has only a marginal net worth as a result of substantial negative reserves. The company is a former BIFR case where its external loans were restructured as a result of financial difficulties and heavy losses.   It is exposed to wool price spikes (imported from Australia) and also to adverse currency exchange rate movements since about 50% of its revenues arise out of exports.   As a result of the dismal financial position and past financial performance, management haven’t declared dividends in any of the past five years and don’t seem likely to initiate them any time soon unless the financial performance improves drastically from here – however, this appears specul