This is the second post in our quarterly update series for Q1 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 future. The purpose of this post is to bring clarity in 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.
Apcotex is one of the leading Synthetic Lattices and Synthetic Rubber makers in India. They have been going through times of stagnating revenues while volumes have been growing consistently. But the company is yet to suffer any material impact from the auto and construction sector slowdown which is expected to be reflected from the next quarter onwards. Thus given the management’s aim to maintain volume growth, it seems like the company is preparing to for revenue stagnation in the next couple of quarters. It remains to be seen how the company can compensate for this domestic situation and how they plan to increase their exports which have not grown as much as expected. Nonetheless, given the track record of the management and the market presence of the company in their industry, Apcotex still remains a stock to keep an eye out for.
Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both India and abroad. They have outpaced the industry yet again and managed to stay stable at a time when all auto majors are reporting volume declines. However, mandatory electrification of 3 wheelers seems to have come up as the biggest risk for the company especially given that they have a completely dominant market share of 87.5% which looks likely to fall if the motion is hurried up. Nonetheless, the company has stayed true to their promise of outpacing industry growth and provide consistent volume growth, thus cementing their spot as one of the few bellwether stocks in India today.
CRISIL has been a trusted rating company for a long time in India. They have established themselves as a reputed name in their operational fields of ratings, research and advisory. The company’s results have not been good due to a decline in profitability in the research division which is their biggest revenue generator. Moreover, they have not been posting any meaningful growth for several quarters now. It remains to be seen how the company plans to revive its biggest revenue generator while building its nascent advisory division which the company has high expectations. Nonetheless, CRISIL is in an industry which has very little competition and thus it represents a consistent bet on the credit rating services industry. Valuation of the stock has come to a reasonable level in recent times. The only challenge for them is to bring back growth which is absent for a long time. Until growth comes back, looks like the market will not get excited.
Intellect Design Arena
Intellect Design Arena has been a consistent performer in the digital transformations space for financial institutions. This is evident from their rising average deal revenue and their high repeat customer revenue. The company has refined its project funnel to ensure that they provide good service and adequate quality to their customers. The company is now seeing it’s business lines turn into reliable earners and growth promoters. The company’s results for this quarter has not been as expected due to the lumpiness of project revenues and their schedule. It remains to be seen whether the company will be able to maintain its growth targets with its current capabilities. Nonetheless, Intellect Design Arena remains a stock to watch out for, mainly due to their market reputation and expertise and their high customer retention rate despite the varied geographic distribution of their customers.
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