Investing Reflections On India

JVL Agro Industries manufactures edible oil. Its edible oil product portfolio includes mustard, soybean and palm oil (which constitute about 75% of edible oil demand).  It also trades agricultural commodities, which constitutes about 30% of its revenues. The company owns the ‘Jhoola’ brand, which is a leading brand in two of India’s most densely populated states.  It also operates the largest single manufacturing facility in India. Management is optimistic about edible oil’s business prospects citing demand/supply gap, demographics, urbanisation, essential nature of product, low per capita consumption, cost effectiveness, current large imports, etc. to make its case for the company’s products.  Management also intend to scale up its agricultural commodities trading operations to leverage its distribution network. The company reported strong growth in revenues and operating profits over the last five years – reporting about 2,700cr of revenues and generating 90cr of o

Deccan Chronicle Holdings operates mainly in the newspaper business and owns the ‘Deccan Chronicle’ (DC) newspaper. It also owns other assets including the ‘Deccan Chargers’ IPL team.  The company recently amalgamated all of its subsidiaries, which resulted in lower profits at the entity-level as a result of subsidiary losses. DC is one of the leading newspapers in south India, particularly in Andhra Pradesh.  The company expanded into Kerala recently but hasn’t broken into the market in any significant way despite giving away free newspapers at certain locations. The IPL franchise is not recognised as an asset on the balance sheet due to conservative accounting but this may well have substantial value over cost of acquisition as evidenced by fees paid by newer franchises (and despite the Chargers’ poor recent performance). The company reported fluctuating operating profits on growing revenues in the last five years – reporting just under 300cr of operating profits o

PAE operates broadly in the Auto and Power Systems industries. The company restructured its activities recently to focus on five segments, which are – auto batteries, auto parts, industrial batteries, solar, and power backup systems. The company has reported reasonably consistent pre-tax profits of 8 to 10cr on a somewhat stable revenue base of 250 to 260cr over the last five years except the last nine months when the higher than usual debt load transformed marginal operating profits into net losses – amounting to 4cr on a revenue base of about 190cr.  The debt load of over 48cr as at 30 th September, 2011 appears dangerously high relative to operating performance but is covered by the enlarged working capital as at that date. One of the key things to bear in mind about this company, which isn’t readily apparent from its form, is that it’s predominantly a trading operation with few (if any) manufacturing facilities.  Therefore, its products/services are generally low va

Inter Globe Finance is a non-banking finance company (NBFC) operating out of Kolkata. It conducts three activities, which are – financing, inter-corporate investments, and capital market operations.  Net interest income forms the largest component of income. The company has undergone a lot of restructuring in the recent past, which involved a reduction in share capital and then the issue of shares to amalgamate 22 companies into itself, which included the induction of new promoters into the fold.  The company repaid its debt with the new equity infusion.  It owned about 4cr of quoted investments at market.  Loans to companies of about 7cr formed the bulk of remaining assets (creditworthiness and loan underwriting standards unknown). Due to the restructuring and new management, analysis of the past record appears to be futile except to the extent that past accumulated losses are now wiped out and future prospects are uncertain. Management plans to expand the compa

Simplex Realty is engaged in the business of real estate construction and similar activities. The company appears to have one residential/commercial project running currently in Mumbai on a revenue-sharing basis with the land owner.  The plans for the project appear to be approved and the commercial certificate is pending. The company reported negative reserves and net worth in 2006 and 2007 and restored it in subsequent years with apparently large net profits, which weren’t backed by cash flows – although over 40cr of loans were wiped out as a result.  The performance has been highly erratic and there are currently no revenues (see above) until the project is completed. Management appear optimistic about the medium to long-term outlook of real estate activities primarily due to the demand/supply gap primarily as a result of government thrust on infrastructure development including housing and retail as well as commercial demand from the IT and Financial Services industr

Kothari Products is engaged in international trading and real estate activities. Its trading is mainly constituted of metals, edible oil, and machinery items. It owns about 100cr of quoted investments at market. The company has scaled up its international trade only recently and in the last nine months ended 31 st December, 2011, it reported about 71cr of total operating profits before exchange losses and loss of 36cr after accounting for it.  This was on net sales of about 2,250cr.  The business is exposed to government bans on imports/exports.  It is a large net importer exposing it adversely to a weakening INR. Management have indicated their intention to focus on trading and expand in that area.  This is usually a low value-added activity with low margins making its profits unusually vulnerable to relatively small declines in trading revenues. Management also maintains investments in companies operating in unrelated areas such as construction developers

Elegant Marble and Granite Industries operates in the business of manufacturing marbles and granites. The company owns over 40cr in liquid investments and didn’t employ any debt in its operations. It reported consistent operating profits of over 1cr in the last five years on reasonably stable revenues of 20 to 25cr. The business is largely dependent on the construction and real estate cycles, which is linked to the interest rate and economic cycles. Management haven’t really discussed the risks impacting their business.  Essentially, it is a highly competitive field where the market is dynamic with preferences changing with fashion trends and inflationary pressures increasing costs of input, energy, transport, etc.