We have been reading the latest Annual Reports of the companies we are tracking.
This is our fourth post where 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 to 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.
Piramal Enterprises has been one of the premier conglomerates in the country. They have built a robust and rigorous financial services business while slowly growing and building their pharma and health analytics businesses. The company has suffered from the slowdown in the NBFC space but despite the current environment, they have provided steady revenue and profit growth. The management has acknowledged that the current tough environment is likely to persist and thus have refrained from providing any revenue growth guidance as their primary focus in this tough period is to maintain liquidity and not take undue risks to maintain their top-line numbers. PEL is committed to bringing in equity infusion in the range of INR 8000 to 10000 Cr. It remains to be seen how the industry and PEL shall come out of the ongoing NBFC crisis but PEL is a stock to look out for in this segment, solely on the basis of their past performance and their focus on maintaining asset quality and their rigorous risk management even in the time of a severe slowdown in the NBFC sector.
Safari is the second biggest player in the organized luggage industry in India after VIP Industries. The company deals mainly in low priced low margin products and is mainly driven by volumes. Thus they are more vulnerable to raw material price increases than VIP since their margins are lower due to their product portfolio. However, the industry is seeing tremendous volume growth. The phenomenal growth has also brought in a lot of small competitors in the arena. Thus, it remains to be seen how Safari will maintain its market position and find a way to resolve this conundrum of heightened competition and increasing raw material cost.
Thomas Cook India Ltd
Thomas Cook India Ltd (TCIL) is the biggest travel company in India. They have been innovators in the sector for more than a century now. The company has shown good resilience in operations despite setbacks to the travel industry from the Jet Airways Fiasco and the Sri Lanka attacks. Recently, when the core holiday business faced some pressure, the other businesses like forex, MICE and corporate travel have risen to fill the void and help the company keep revenues up. The bankruptcy of Cox & Kings has freed up some space in the incumbent travel market which TCIL looks primed to capture. But it remains to be seen whether this incident will negatively affect sentiments for the entire industry and Thomas Cook. The erstwhile parent company of TCIL, Thomas Cook PLC has recently filed for bankruptcy. This news has created a panic in the investors’ community. Investors are dumping stock of TCIL assuming it to be a subsidiary of Thomas Cook PLC. However, if anyone digs at the shareholding pattern of TCIL, it is clear that Thomas Cook PLC has no relation with TCIL after it sold its stake to Fairfax holding in 2012. TCIL continues to be a good stock to watch out for, particularly given its industry experience and widely diversified sources of revenues.
VIP has been the market leader in the soft and hard luggage segment in India for a long time now. The company is one of the biggest luggage manufacturers in the world by volume. Even while enjoying these advantages, the company has gone through the same problems of rising costs and dipping profits as the rest of the industry. But even then the management of the company is confident in its brand’s resilience and has identified raising gross profit margins as their number one priority. They are even ready to take some dip in volume growth if necessary to achieve their goal of driving profits. They are not chasing short terms gains of maximizing revenues and instead focussing on maintaining company reputation and delivering long term value generation by focussing on making their business more profitable. In their pursuit of minimizing expenses and increasing profits, they have started reducing their dependence on China for sourcing raw materials. Their Bangladesh unit is seeing a lot of traction now. In the years ahead, it is expected that dependency on China will further reduce, thereby making margins sustainable for the company. Thus, VIP presents itself as a decent investment option for anyone willing to take exposure in the growing luggage industry of India. However, valuation at the current level is not cheap.
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