This is the tenth post in our quarterly update series for Q4 FY20.
In this post, we’re sharing the latest updates 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. We make our notes on the quarterly results and conference calls. Putting it up here makes it easier for us to refer them at a future date.
You can see the earlier updates here.
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Please click on the read more button for more details on each stock.
Balkrishna Industries
BKT has been a rising player in the off-road tires business for years now. The company has done well to bounce back in Q4 and record its highest ever quarterly sales volumes. It has also brought about margin expansion while doing so. The addition of the carbon black plant is expected to bring about additional margin appreciation for the company. Although the company was hit by supply chain disruptions due to the lockdown it didn’t hamper its sales in the EU. It remains to be seen whether there are any other economic shocks to come from COVID-19 and whether the expectations of normal agricultural seasons in the company’s principal markets pan out in expected manner. Nonetheless, given the company’s sustained margin performance, its resilient market share in a stagnant global market, and the rapid rise of the company in India, Balkrishna Industries is a good tire stock to watch out for.
Hester Bioscience
Hester Biosciences has been a darling of small-cap picks in the recent past. The company has had a tough time this year with the recession in the poultry industry and delays in the animal vaccine tenders. The growth of their international units has been very good and has helped shore up most of the shortfall in the domestic market. The management has done well to clearly identify the growth path ahead for the different vaccine divisions for the company and for foraying into the human vaccine with a potential COVID-19 vaccine in collaboration with IIT Guwahati. It remains to be seen how long the slowdown in the domestic poultry market continues and whether the industry will bounce back as soon as the company expects. Nonetheless, given their excellent technical expertise and the future potential of its international operations and its foray into human vaccines, Hester Biosciences remains a good small-cap stock to watch out for.
ITC Ltd
ITC has been one of the biggest conglomerates in the history of modern India. The company has done well to diversify into other FMCG segments and build many leading brands like Aashirvaad, Bingo, etc. The company has seen a modest performance in the current quarter with severe disruption in its FMCG-Cigarettes and the Hotels business due to the lockdown. The company is doing well in maintaining a leadership position in many of its brands. The company has shown resilient growth in its FMCG segment despite the supply chain constraints brought on by COVID-19. IT has also done well to expand the manufacturing capability of Savlon Brand and to capitalize on the demand surge for Health & Hygiene products by introducing two new products under the Savlon brand. It remains to be seen how the company will restructure its vast supply chain structure to function efficiently in the post COVID world and whether there are any more disruptions in the future from COVID-19. Nonetheless, given its history of building and maintaining durable brands, its leadership in various operating segments, and its mammoth cash-generating ability, ITC remains a critical stock to watch for any investor interested in the themes of FMCG and consumption.
KRBL
KRBL is one of the biggest sellers of basmati rice in the world. It has built up a long-standing legacy of more than 120 years and enhanced it using modern technology to make the process from grain to pack as efficiently as possible. The company has done well in FY20 despite the setback in Q4 from COVID-19. The only major loss to the company in Q4 was from loss of domestic orders while export orders merely got delayed. The company is doing well to reduce its dependence on working capital loans and to develop into regional rice and other avenues. It remains to be seen how the company will evolve to the new packing and shipping norms due to COVID-19 and whether this will prove to be a stumbling block in its way to its target of annual revenues of Rs 8000 Cr. Nonetheless, given the company’s long-standing brand image, its resilient operations and export structure and its focus on maintaining its strengths and developing new avenues, KRBL may turn out to be a prime wealth creator in the next few years.
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