Investing Reflections On India

Bhagwandas Metals trades in steel products. The general demand outlook for steel appears to be positive with government expenditure on infrastructure projects and improving consumer demand – although the company’s ability to outsmart competitors is not as certain. The company reported reasonably stable revenues and operating profits (albeit with wafer-thin margins) over the last five years – reporting 63lacs of operating profits on revenues of 70cr.  It operated with a net cash position of about 2cr as at the end of the last financial year. The primary issue with the company is that it’s a trading outfit and does not own manufacturing facilities – while this gives it flexibility to adjust to market conditions, it doesn’t own the value-generating activities that is essential for building competitive strength in its industry. Demand for steel is subject to the interest rate cycle and a period of high interest rates (such as currently) results in delayed government proj

Rama Vision is in the business of trading in the FMCG (Fast Moving Consumer Goods) segment. It procures and distributes a broad portfolio of products in the mother/baby care and other personal care sub-segments.  It distributes goods such as ‘Kindoh’ biscuits, ‘Real Thai’ foods etc. The company’s strength appears to lie in its distribution network and market knowledge. There appears to be plenty of per-capita growth potential in branded products with expected economic growth in the country. The company reported marginal profits on growing revenues – reporting 72lacs of operating profits on revenues of 18cr in the last financial year.  It operated with minimal net debt as at 30 th September, 2011. However, the company is in the business of trading and not owning the brands themselves depriving it of the main source of value and the risk of suppliers choosing other distributors. There is strong competition from international players who are focusing on volume

Polychem engages in the manufacture of specialty polymers and property development. The specialty polymers find application in 1) investment castings used in the automotive industry (expected to grow strongly over next five years) including exports to Japan, and 2) as filler in cement for structural repair of columns/beams in old buildings (dependent on repair work on ageing buildings).  The company also has about 1.4cr of assets deployed in property development. The company reported continuous operating losses in the last four years on a revenue base of about 5cr in the last financial year.  It owed no debt and operated with over 6cr of liquid investments and cash at the end of the last financial year. The business is subject to cost increases of its primary raw material – styrene monomer, which is a crude oil derivative and hence, exposed to crude oil price increases. Moreover, the business has limited pricing power with customers and consequently, profit margi

Inhouse Productions appears to be in the business of producing films/television (tv) programs and providing outsourcing services for the medical industry. The company reported declining and marginal operating profits on declining revenues in the last five years – reporting 27lacs of operating profits on revenues of about 8cr.  Its debt load appears to be effectively backed by its net current assets. Although healthcare revenues and profits are substantially higher than the tv segment, curiously enough, management have devoted all their attention to discussing the tv segment and have scarcely mentioned healthcare. Even more intriguingly, management have not mentioned the name of a single film or tv program in their lengthy discussion of the business and its prospects, casting severe doubt on the legitimacy of the whole operation. Scanning through the balance sheet, the company has 2cr of investments in miscellaneous unquoted companies in leasing/finance, websites, and

PVP Ventures is in the business of real estate development. It has one residential project at Perambur, Chennai  - which appears to be completed but where the company is yet to start receiving rental income although management assert that it will receive substantial cash flows from this project over the next five to seven years.  The company also owns a plot of land in Hyderabad. The financial statements, however, reveal the imprints of mismanagement. It generates no revenue, reported continuous losses over the last five years, and carries a debt load that doesn’t appear to be backed by asset values. The audit report is a scathing read of the company’s prospects and finances – and a good starting point in this case for someone unfamiliar with the company.  First and most importantly, the auditors do not believe the company will continue operating beyond the next twelve months and the state several reasons including: lack of business activity, dependence on other

Coral India Finance and Housing operates primarily in the construction business. The company generates rental income from owned properties and expects a favourable long-term outlook as demand for real estate increases along with the economy.  The company reported reasonably stable performance over the last five years – reporting 6cr of operating profits on 7cr of revenue in the last financial year.  It owed no debt but owns several marketable securities including about 6cr worth of Coral Labs stock (as at the end of last financial year). Management have not bothered to discuss the business and its prospects in the annual report – probably shedding light on their commitment to minority shareholders. The real estate business is exposed to the construction and economic cycle.  Further, the accounting involves the use of a lot of estimates that requires careful attention when making an investment judgment of the company.  Of note within the accounts is 30cr under ‘Pr

Longview Tea, contrary to its name, is primarily in the business of making loans and advances. These loans and advances appear largely uncollectable.  Moreover, it is the recipient of interest-free loans from other companies – the repayments appear to be in doubt. The company generates no revenue and reported continuous operating losses in the last five years.  It also owes about 50lacs of net debt as at 30 th September, 2011. Management haven’t bothered with discussing the company and its plans – perhaps their mood is killed by the company’s large accumulated losses. The company’s auditors have pointed to the lack of provisioning of 35lacs for uncollectable debtors, 41lacs for uncollectable loans and advances and 1.43cr of uncollectable interest.  The loans and interest haven’t been classified as ‘non-performing assets’ per RBI norms. Further, the company still hasn’t obtained registration from RBI for its lending activities – although these appear to have ceas