Windsor Machines: Indian Equities

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Windsor Machines: Indian Equities
Windsor Machines manufactures capital equipment machinery for use in injection moulding and extrusion activities – both dividing sales equally.
It has technical collaboration with Italian and German manufacturers for producing its plastic processing and pipe machines.
The company reported accumulated losses in the past as a result of a combination of poor aggregate operating performances and an extraordinarily high debt load.  Its shutdown was avoided by secured lenders taking a 55% haircut on their loans.  It had a more manageable debt load as at 30th September, 2011 (if the company can continue to be reasonably profitable).
Its debts comprised of unsecured loans from a company and a smaller inter-corporate loan – implying that their terms are likely to be softer than secured loans from banks and therefore subject to less stringent action should operating conditions turn worse.
It reported 18cr of deferred tax assets (as at 30th September, 2011), which have value only if the company can generate sufficient future profits to utilise them – this is far from certain.
It also lacked adequate working capital, as at that date, putting further strain on financing its operations.
The company reported reasonable operating profits in the financial years (FY) ended 2010 and 2011 on growing revenues but this has taken a hit in the last twelve months with operating profits of just over 15cr on a revenue base of about 230cr.
It sold 608 machines in FY 2011 and 520 machines in the year before – these numbers are likely to come under severe pressure in the near-term due to the factors below.
Demand for extrusion machines from packaging customers has been severely hit by the government ban on plastic packaging – this should be discounted in the investors’ forecast of future performance.
The business is extremely cyclical – marked by the capital investment cycle, which is heavily influenced by interest rates and the economic environment.  Therefore, a period of high interest rates (such as now) would adversely impact its operations.
It is exposed to oversupply in customer industries such as that affecting the pipe industry currently.
The company is adversely impacted by heavy competition – particularly from far-east manufacturers who are setting up capacity in India for injection moulding machines.
The operation is subject to rising costs of iron and steel – its raw materials.
Apart from the above, the business is also exposed to technology obsolescence, government duties and taxes, and a strengthening INR (company is a net exporter) among other factors.
By: AI

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