Investing Reflections On India

Indian Toners is in the business of manufacturing toners and developers for laser printers, photocopiers, and digital machines. The company obtained the status of an ‘Export House’ in the previous year, which brings with it export benefits and the like.  It is also diversifying and expanding its product range through a pilot plant, which appears to have met good market success in the prior year. The company reported stable performance over the last five years – reporting about 10cr of operating profits on revenues of 63cr in the last financial year.  It operated with a net cash position of about 4cr in the last financial year. The company’s strategy appears to be to build its brand image by providing quality products at reasonable prices in an industry where customers are implacably cost-conscious. The generic product is a commodity with multiple suppliers providing intense competition including clandestine importing of cheap toners. The business is exposed to in

Santaram Spinners operates in the textile industry and is in the business of producing cotton and cotton yarn. The company entered into cotton ginning and export in the previous year perhaps due to the remunerative prices obtainable on cotton and the relatively low investment required (which is the reason for lower switching costs for farmers as the demand/supply situation changes). Management assert that the company has the necessary machinery, farmer access, and port connection for cotton export and reported large profits from this segment last year (due to high cotton prices). The company also engages in trading of cotton and yarn (i.e. not produced by itself), which sometimes forms the majority of sales (such as the previous year). The domestic and international market for cotton and yarn is large.  The domestic market, in particular, is expected to grow over the long run with higher disposable incomes resulting from expected economic growth.  The scope for inves

Bhagawati Gases is in the business of supplying industrial gases It supplies argon, nitrogen, and oxygen to three customer segments (based on customer size) – tonnage supply scheme, merchant market for bulk liquid, and cylinder gas deliveries. The company reported continuous operating losses in the last three years on a revenue base of about 5cr in the last twelve months.  The debt load of 2.4cr is well covered by tangible assets of over 26cr.  The value of tangible assets was evidenced by a partial liquidation that was used to pay off debt two years ago, which wasn’t more than 2/3 rd of its net book value at the time. It is heavily dependent on one customer – Hindustan Copper Limited (HCL) - for most of its sales and this risk manifested itself recently when copper prices plunged last year depriving the company of orders for oxygen and forcing it to shut down supplies and take a hit on revenues.  Even under favourable business conditions, it is exposed to the success o

Katare Spinning Mills operates in the textile (cotton yarn) and hotel industries. The profits on both segments are similar.  Management expects cotton yarn demand to remain strong domestically and internationally over the long run. The company operates a hotel in Solapur with about 54-room capacity.  It is enjoying reasonable occupancy rates as a result of tourism and industrial development around the area as well as a refurbishing exercise undertaken on the hotel in the previous year. The company reported reasonably stable operating profits (but declining margins) on growing revenues – reporting over 2cr in operating profits on revenues of 47cr.  Its net debt load appeared to be backed by net current assets alone. The business is exposed to hikes in cotton prices, which shot up over 100% in the previous year.  This has resulted in lack of demand and un-remunerative prices resulting in poor returns on substantial capacities added in previous years.   Inflationary

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