We have been reading the latest Annual Reports of the companies we are tracking.

In this post, we’re sharing our notes on  Annual Reports of the stocks from our watchlist. Please don’t treat this as a buy recommendation. We find these businesses interesting and we may build position (or buy more of those that are already in our portfolio) in them in the future. The purpose of this post is to bring clarity in our understanding of the businesses we are tracking. Putting it up here makes it easier for us to refer them at a future date.


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Please click on the read more button for more details on each stock.

Cadila Healthcare

Cadila Healthcare is a long-standing company with a proven track record of more than two decades in the pharmaceutical space. It has created a lot of wealth for the shareholders in the same period.  The recent USFDA inspection and Official Actions Initiated (OAI), we believe, is a short term set-back and the company would be able to resolve in due course.

The company is trading at only 14 times trailing earnings. Given the growth in earnings expected for the next couple of years, the current valuation seems very reasonable with limited downside. Cadila also holds 67% stake in its listed FMCG subsidiary Zydus Wellness which is growing strong and has a long runway to growth. Zydus Wellness has recently acquired Heinz India’s business comprising leading brands like Complan, Glucon D, Nycil and Sampriti Ghee brands along with its two large manufacturing facilities. While the valuation of  Zydus Wellness appears to be stretched at about 45 times trailing earnings, investment in Cadila Healthcare’s stock is a good way to get exposure of the growing business of  Zydus Wellness at a reasonable valuation.

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Amber Enterprise

Amber Enterprises is an important emerging player in the Indian AC industry. The company has made some good acquisitions to bring down their overall costs through vertical integration and expand its product portfolio to achieve higher margins and reduce dependence on RACs. Amber has shown good performance in the recent past and has the inherent advantage of operating in the fast-rising RAC industry which is still in its nascent penetration stage in India and has a lot of room to grow and expand. At Rs 840 at roughly 30% below its IPO issue price 1180, the company looks interesting. If the company continues to maintain its growth rate, valuation at 22 times price to earnings looks reasonable. However, the working capital cycle has got stretched in recent times which we believe we should monitor closely. ROE of the company for the past three years show an increasing trend but is still not very attractive. Hence it remains to be seen if future growth can lift the ROE. Nonetheless, Amber Enterprises is a company worth tracking.

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Credit Access Grameen Ltd

CreditAccess Grameen Limited (formerly known as Grameen Koota Financial Services Pvt. Ltd.) is a microfinance institution providing a wide range of financial services to the rural poor and low-income households, particularly women. The company provides loans primarily under the joint liability group (JLG) model. Its primary focus is to provide income generation loans which comprised 87.02% of its total JLG loan portfolio, as of March 31, 2019. CAGL looks like a fast-growing MFI which has all the building blocks of a very sustainable business model in place. They are trying their best to reduce their dependence on the state of Karnataka. If the momentum of growth in GLA/AUM and branches continues as it has been in the past, it has a long tailwind. However, we believe, that the valuation at around 4 times price/book (TTM) is a little too high compared to the valuation of its peers. Nonetheless, CAGL is a stock worth tracking.

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CCL Products

CCL Products is a sound company with good industry reputation and an experience of more than 25 years in the instant coffee industry. The company has made good long term trade relationships which are vital for any export business. The company’s strategic positioning in Vietnam should bring many benefits to the company in the future due to access to the prime coffee consuming regions in Asia and zero duty structure for exports. The company’s foray into the branded instant coffee space should prove fruitful given the company’s pedigree in developing and manufacturing high-quality coffee blends while maintaining high product consistency. The coffee industry remains underpenetrated in India and the rest of Asia thus highlighting the massive potential for market expansion in this industry. Dependency on a few large customers turned out to be expensive for the company in FY18-19. The working capital cycle has also increased due to the same in FY 19. Nevertheless, CCL Products is an interesting story to watch out for.

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