This is the third post in our quarterly update series for Q3 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.
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 in India and abroad. Despite the expected decline in domestic business, the export business has helped raise the overall performance of the company. Q3FY20 was the best quarter for the company in terms of export volumes and export revenues formed 43% of total revenues. The company is also progressing well towards its transition from BSIV to BSVI. Despite the non-appearance of temporary demand due to muted pre-buying before the BSVI transition, the company has been able to keep its performance and sales figures well above industry standards and preserve its market share. It remains to be seen how long the current auto sector slowdown will continue and whether the company will be able to continue its export growth at the same pace as before. Nonetheless, given its commanding position in the Indian auto industry and the resilient performance of the company in troubled times, Bajaj Auto remains one of the safest bet in the auto industry.
CCL Products Ltd
CCL has already established itself in the wholesale coffee space for many years and their foray into branded sales through Continental Coffee label has been very encouraging. The company has had a good quarter on the back of the improved product mix and bagging a few big orders from Switzerland. The company’s branded business is growing well and has already captured almost 5% market share in prominent cities in the South like Hyderabad. This highlights the quality of the brand’s offerings and the competitive edge of the company which should help them further in capturing market share from incumbent players like Nescafe and Bru. The company is doing well to capitalize on its unique offerings and is working hard on expanding its influence. The management has been prudent and frank that this competitive advantage is not permanent and other players may soon start developing similar products and dilute its unique edge. Hence, management says that it is working as hard as possible to push its growth as long as this edge lasts. It remains to be seen whether the path forward for the company will be as smooth as it has been so far, particularly for its branded business. Nonetheless, given the enormous market opportunity for the branded business in the domestic market and other innovative products like flavoured cold brew in advanced markets, CCL products may turn out to be a rising dark horse in the global coffee industry in the years to come.
Dixon Technologies India Ltd
Dixon Technologies is one of the foremost leaders in the electronics manufacturing and outsourcing industry in India. The company has done well to scale up its different diverse divisions: lights, consumer appliances, mobiles, etc. It has also acquired many marquee customers along the way. The company has also managed to acquire global electronics conglomerates like Samsung as a customer in different business segments. The company is also looking to capitalize its expertise and market reach to expand into export markets where there is a lot of potential for growth, especially for an electronics ODM. It remains to be seen whether the way forward for the company in the export market will be as smooth as the domestic one. The company also imports a visible majority of its raw materials for its many divisions from China and the effects of the recent coronavirus scare will only be reflected if the trade shutdown persists for more than a quarter. Nonetheless, given the list of marquee customers that the company has gained and retained over the years and its outstanding cash-generating ability, Dixon Technologies is a thus a good growth-story in the outsourced manufacturing market of India.
Manappuram Finance has long been one of the most consistent players in the NBFC sector in India. The company has cemented its position as one of India’s gold loan providers in India by growing its core business consistently. The company’s current quarter performance has been very good with >25% AUM growth across all segments. The company has done well to balance its efforts and expand both its core business of gold loans and other businesses like Microfinance and vehicle finance and consistent pace all the while keeping NPAs in check. Asirvad’s performance for the quarter also has been very good and the company has been able to keep the rise in NPAs at a much lower level than the industry due to its good risk management practices. It remains to be seen whether the company will be able to achieve its ambitious fold tonnage growth target of 10-18% for the next 2 years. Nonetheless, given the company’s market positioning and its history of consistent performance across all operating segments, Manappuram Finance remains one NBFC stock that all investors should keep an eye on.
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