This is the second post in our quarterly update series for Q2 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.
HDFC Asset Management Company
HDFC AMC is the leading mutual fund house in India. It is the market leader in actively managed equity funds space and a trusted mutual fund provider for individual investors which is evident in their high individual account numbers and AUM. The company continued its impressive growth in the liquid funds’ space whose share in total AUM grew almost 3% QoQ. The company also opted for the lower corporate tax rate which saw the Q2 PAT rise substantially. The revenue growth for the company was not as high as the AUM growth and that was due to the evolving product mix which saw the share of equity funds fall. Nevertheless, HDFC AMC is a good stock to keep in mind, particularly given the immense market opportunity and the company’s pole position in the industry. However, good companies are seldom available at a discounted price. The current valuation of the company at more than 50 times earnings (TTM) is not cheap by any standards.
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 and despite the current environment, they have provided steady revenue and profit growth while reducing their exposure to wholesale real estate. The company remains committed to maintaining liquidity in its financial services business in the hopes that once the industry looks up, they will be in pole position to take advantage of it. The pharma division, on the other hand, has shown good growth and is expected to maintain its steady growth in the near future. The Healthcare Insights & Analytics business is also looking up and starting to deliver on its potential. It remains to be seen how the NBFC slowdown pans out for the company and how long this environment will last. Nonetheless, based on their robust and rigorous financial services business and their pharma and healthcare insights divisions which have begun to deliver, Piramal Enterprises remains a good stock for any investor looking into these particular themes.
Tata Elxsi has been one of the few Indian companies that have focused exclusively on advanced technologies and integrated product design. The company had a modest quarter with signs of revival and good growth in its other sectors. The company saw almost flat growth in its automotive business but was able to grow other businesses well sequentially (like system integration). The company still faces an uphill task of maintaining its revenue growth despite challenges in its dominant automotive sector and the challenge of bringing up and developing nascent sectors like medical space. Nonetheless, given their technological reputation and focus on growing other key verticals like telecommunications and medical, Tata Elxsi remains a good investment prospect in the information technology and industrial design segment.
Tata Motors continues to be on the slow path to recovery. The performance in JLR has been encouraging with revenues rising 8% YoY. But the domestic business of Tata Motors has deteriorated further with CV and wholesale volumes declining significantly. The company remains optimistic about the sales pick up after the festive season. Overall the revival of JLR in China and the upcoming launches of 3 major models bodes well for the company. The company still faces a massive risk event in Brexit and the uncertainties arising from it. It remains to be seen how the company will fare in the economically and politically turbulent time to come ahead. Nonetheless, Tata Motors is still an auto stock to keep an eye out for, given the revival of JLR performance and China in particular.
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