Investing Reflections On India

Ecoboard is in the business of manufacturing ‘Particle Boards’ that are used as wood substitutes in furniture. The products are eco-friendly – in that they help with conservation of forests, prevention of pollution, etc. The company’s performance over the last five years has been erratic – reporting net losses in the last three years including net losses of 3cr on a declining revenue base of 25cr in the last nine months ended 31 st December, 2011.  Considering this, it operated with an uncomfortably high net debt load of about 20cr as at 31 st March, 2011 (latest not available), although this was amply covered by other net current assets. The critical risk facing the business is the lack of sufficient raw materials i.e. bagasse.  Moreover, there is a lack of sufficient public awareness for these types of products. The company has not grown much over the last few years and incurred operating losses in the last financial year.  Furthermore, it has also suspended manu

Stanrose Mafatlal Investment and Finance is an investment company. Its investment portfolio is largely concentrated in the stock of Standard Industries Limited (SIL), which comprises 2/3rds of the portfolio’s total market value (approx. 60cr).  It didn’t employ any debt in its operations. Apart from the above, the company is also engaged in trading in securities, a real estate partnership, and inter-corporate lending activities. The company has reported profits over the last five years – largely from capital gains.  It reported about 4cr in net profits in the last twelve months. The company’s value appears to be largely dependent on the value of SIL and hence, it is exposed to adverse developments at SIL.  Its trading activities are exposed to market downturns and management intentions to focus on trading of derivatives appears to be concerning considering the intense competition and large risk of losses. It owns a stake in a real estate partnership (with SIL

Wallfort Financial Services operates in the brokerage industry. It currently has about 100 institutional clients and management intends to focus on institutional business – both foreign and domestic – over retail. The company has more than half its current net worth of about 70cr in stocks. Its net worth has fluctuated over the last five years – declining in 2008 as well as 2009 as a result of losses during periods of market downturn.  In similar vein, it reported net losses of 2.5cr in the nine months ended December 31 st , 2011.  Therefore, its performance appears to mirror the market in direction – with no special ability to withstand downturns. The business is marked by intense competition and low volumes during market downturns and stagnation.  Further, its arbitrage opportunities have disappeared due to competition and uniform settlement cycles.  Management haven’t declared dividends to shareholders despite large liquid assets and lack of profitable growth

TCFC Finance is engaged in share trading – primarily in secondary companies. The company reported just over 60cr in stock-in-trade as at 30 th September, 2011. Management haven’t provided details of their trading strategy and hence, we’re unable to judge its viability.  It does not appear to be stable since they seem to be willing to change course depending on their assessment of economic conditions.  They also appear to be engaged in the ‘hedging’ of equity shares and mutual fund units, which could expose the company to unlimited losses in a sustained bull market. The company reported a drop in net worth in 08/09 as a result of the financial market downturn and also reported losses of about 4cr in the nine months ended in December 2011 as a result of market weakness.  The performance is erratic, as expected, and appears to depend largely on the performance of the markets – with no special ability to withstand market downturns.

Industrial and Prudential Investment Company, as its name implies, is an investment company. It appears to hold investments for the long-term and dividend income dominates its earnings stream.  It owns a widely diversified list of equity and mutual fund units amounting to over 300cr in market value. Its largest position appears to be in KSB Pumps, which amounts to 10% of its total portfolio by market value. The income is overwhelmingly constituted of dividends on long-term investments, which has been steadily rising over the last five years – amounting to over 6cr currently, thereby contributing to a steady increase in reported net worth over the same period. It is unlikely to realise large capital gains during periods of market exuberance if it continues to stick to long holding periods regardless of market conditions.  Furthermore, it is exposed to market declines if it intends to liquidate portions of its portfolio in the short/medium term, which appears unlikely

Vaghani Techno-Build operates in the real estate industry. It is engaged in the construction and development of infrastructure and trading of Transfer Development Rights (TDR), which originate when landowners sever building/development rights from a particular piece of property. The company reported negative reserves several years ago although it appears to have recovered ground at present.  Pre-tax operating profits were reported at 2cr per year for the last three years but have slipped back into marginal losses over the last nine months. The business is exposed to all the risks of the construction and real estate industry including high interest rates, execution risks (availability and costs of material, labour, etc.), stringent government regulations (taxes, permits, etc.), and other relevant factors. The balance sheet reveals stock of ‘Industrial Units’ (recoverability unknown), advances for capital goods (projects unknown), and debts are older than six months.

Kohinoor Techno Engineers is in the business of software development for diamond machinery. The company is over 25 years old with an 80% market share for laser machines and has a worldwide customer base.  Management intends to move into the business of producing diamond machinery directly.  They also engage in short-term diamond trading/manufacturing/processing as and when market conditions appear lucrative. The company’s net worth, however, has gone nowhere in the last decade and has been reporting negative reserves for the last decade.  Performance over the last five years has been marginal at best and net profits over the last year were just under 7 lacs on revenues of about 3cr. The business is dependent on the capital investment cycle, which is adversely impacted in a high interest rate environment.  The industry appears to be a highly competitive where the company has limited competitive advantage as evidenced by their low profit margins. The company reported 1