Three Potential Companies for Long Term Buy

AllCargo Global Logistics Limited (ALLCARGO): It is a logistics service provider dealing with multi-modal transport operations, which include less than container load and full container load cargos for exporters and importers. It owns container freight stations near major ports in India. It also has presence in Europe and is expanding in to airfreight business.

• Operating Cash flow (overall increasing trend, but not consistent)
• Debt (higher than cash flow and net profits)
• Dividends (yes)
• Reported Net Profit (positive, overall increasing trend)
• Margins (positive, stable to improving trends)
• Capital usage (stable in mid-teens)
• This seems to be a good company with much focused business staying with freight transportation. The company has high debt. However, the fact that owners have very high stake (79%), means owners have high confidence that it is manageable.
• I have a kind of mixed observation, not great but not bad enough to ignore. I will read more and see if it has merit for my long term portfolio goals.

Aditya Birla Chemicals (India) Limited (ABCIL): It is provider of chemical products like caustic soda, chlorine and its derivatives, and compressed hydrogen gas. Aditya Birla Group has a majority stake in this venture. Being purely in commodity business, its business model is to make money by operational excellence and economy of scale. If an investor wants to buy shares in this company, it should be driven by quality of management. There is nothing unique about its business model, products, and/or market share. It will always be beaten down in competition.

• Operating Cash flow (overall increasing trend, always more than net profits)
• Debt (higher than cash flow, but continuously reducing)
• Dividends (yes)
• Reported Net Profit (positive, overall increasing trend)
• Margins (positive, and surprisingly high for commodity business)
• Capital usage (stable around 20s)
• Being in a commodity business, I was surprised to see high cash flow, good margins, and return of capital employed. The company also seems to have continued to improve by debt reduction, and operation excellence.
• I like the company solely due to the quality of management and its ability to execute in highly competitive business segment. I initiated a starter position in this company so that I can follow it much better. Shortly, I will provide my analysis.
• [April 16, 2007] Detailed analysis on ABCIL
  

Zydus Wellness Limited (ZYDUSWELL): This Company is subsidiary of Cadilla Healthcare. The consumer business of Cadilla was divested and integrated into Carnation Nutra Analogue. This merged business was renamed as Zydus Wellness Limited. It provides health care conscious food products and skin care products. The food products include low cholesterol butter, margarine spreads, and sugar free. The skin care products include face wash and scrubs. To me, this is another commodity business directly facing the consumer; something like an FMCG business. Branding, operational excellence and economies of scale play significant role in company’s profitability.

• Operating Cash flow (overall increasing, but not consistent, most of the time higher than profits)
• Debt (no debt, I like such companies)
• Dividends (yes)
• Reported Net Profit (positive, and overall increasing trends)
• Margins (positive, overall improving trends)
• Capital usage (positive, and decent)
• I like this company because of its debt free balance sheet, cash flow, and branding in the market. To me, it appears that management is doing good job of maintaining decent margins and use of capital.
• One aspect that makes me take a pause is future growth plans. Does it plan to go health conscious driven consumer products in food segment OR does it plan to become run-of-the-mill personal care Products Company? Need to read more.

All three companies seem to have good potential for my long term portfolio. But these are just based on preliminary overview type of reading. Who knows, when we dig deeper something else may pop up. Readers may be little curious that all three of these companies are not a typical dividend type company that I look for. Based on what I have read so far, I put these in a group of well run companies with good managements.