Investing Reflections On India

Ponni Sugars operates in the sugar industry producing sugar from sugarcane. The company has access to relatively low cost cane supplies that provides it with some buffer during the industry’s persistent cyclical downturns. The company has reported moderate growth in revenues over the last five years but operating profits (and losses) have been erratic.  It reported 15cr of operating profits on revenues of about 270cr under depressed operating conditions (see below).  It operated with a moderate net debt load of about 15cr but this is set to increase substantially over the next few years (see below). The company intends to invest 110cr in increasing capacity via debt funding in 2012, which may increase its financial risk profile.   It also intends to invest heavily in a power co-generation project.  These additional capital expenditures will reduce free cash flows, at least over the medium term. The business is exposed to the myriad problems of the sugar industry.  Su

The company operates in the textile industry – processing and selling fabrics.  It focuses on heritage and craft fabrics and uses dyes/plain fabrics to create printed fabrics.  The company has reported very modest growth in revenues and operating profits over the last five years – reporting 4cr of operating profits on revenues of 36cr in the last financial year. It employed no net debt in financing its operations and held about 9cr in liquid investments, primarily in equity mutual funds. The industry is blighted by government policies that work against domestic players such as propping up of ‘zombie’ units (to preserve employment) and export restrictions on cotton yarn and other related products.  The company is forced to import fabrics due to the lack of domestic supplies, resulting in exposure to a weakening INR.  Moreover, the US and Europe account for over 60% of Indian textile exports, resulting in substantial diminution in the industry’s overall revenue as a result

Jetking Infotrain operates in the IT education industry, providing training solutions for hardware and network professionals. The company has over 100 centres throughout the country and has partnerships with IBM for training material, WIPRO for recruitment and various colleges for training students.  It aims to adjust its curriculum according to demand and hence, focuses on recruiter requirements when drafting its courses. The company has reported declining revenues and operating profits over the last five years – reporting about 10cr of operating profits on revenues of about 40cr in the last financial year.  It employed no net debt in its operations and had liquid assets amounting to about 18cr as at 31 st March, 2011. The business is subject to the risks of rapidly changing technologies such as cloud computing, which question the need for extensive hardware/network systems.  Therefore, the company has to always be on the watch to update its curriculum, which increases

Sandur Manganese is in the business of mining manganese and iron ore for eventual use in manufacturing steel. The company reported good growth in revenues and operating profits in the last five years – reporting 140cr of operating profits on revenues of about 350cr in the last financial year.  It employed no debt in its operations and had sizeable liquid assets of over 100cr as at 31 st March 2011.  This financial position, however, may change significantly over the next few years as a result of management’s expansion plans (see below). The company is expected to incur heavy capital expenditure in the next few years (see below), which will have an impact on future free cash flows for investors. The business operates in an industry that has high power requirements, which causes operational problems in a power-deficit country.  The business is exposed to the risks of periodic oversupply of ore in the industry (as currently with manganese ore) where there are few outlets f

Sudal Industries is in the business of manufacturing aluminium extrusions, which h are used in several basic industries such as construction, buses/trucks, power, electrical, defence, railways, infrastructure, packaging etc. with new applications still being discovered.  Moreover, aluminium penetration in the Indian market is very low by world standards (like a lot of other products) indicating potential for a lot of future growth. The company reported a recent spurt in revenues and operating profits of 10cr and 110cr respectively.  It employed moderate debt of 12cr as at 31 st March 2011 but this is set to increase substantially over the next few years as a result of capacity expansion plans (see below). The business is exposed to rising aluminium prices and is subject to the general economic cycle. Management have planned large capital expansion projects with capital expenditure equivalent to about 60% of current resources planned for next year alone.  Needless to say

Hyderabad Industries is in the business of manufacturing fibre cement sheets and thermal insulation materials. It owns the prominent ‘Charminar’ brand and is a market leader in its industry with 20%+ market share. The company has reported good growth in revenues in the last five years as a result of capacity additions but operating margins have taken a hit in the last year due to overcapacity in the industry (see below).  It reported 88cr of operating profits on 725cr of revenues in the last financial year.  The company employed only moderate debt in financing its operations despite the heavy capacity additions in the industry, which is a point in favour of the company’s strong cash flows and management competence. The business is exposed to the risk of substitutes becoming economically viable such as GI corrugated sheets (steel-based).  The business is dependent on rural spending power and there is little pricing power within the industry to pass on increasing input cos

National Peroxide is in the business of manufacturing hydrogen peroxide – which is used primarily in the paper industry. The company is the leader in the industry, which exhibits growth of 7% p.a.  It plans heavy capital expenditure in the next few years to ramp up capacity and remain competitive. The company has reported good growth in revenues and operating profits over the last five years – reporting 90cr of operating profits on revenues of 180cr in the last financial year. It employed no net debt and held about 21cr of liquid investments largely in an equity mutual fund. The fortunes of this business is tied to the paper industry, which faces its own problems such as moves to a ‘paperless’ world, consolidation of capacities etc. It is also dependent on natural gas prices, which is expected to rise substantially from 2014 (based on current spot prices) when the company’s current fixed price contract with Petronet LNG expires. The industry is also blighted by surpl