This is the third 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.
Hester Biosciences has been a darling of the stock market in the recent past. The company has experienced a dip in its growth path in the current quarter mainly due to rising feed prices for poultry and the delay of certain tender contract payments. 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 remains convinced that they will be able to achieve their annual targets despite the setback in the current quarter. It remains to be seen how long the slowdown in the domestic poultry market continues and how the company will cope with it given that this is its biggest sales category. Nonetheless, given their excellent technical expertise and the future potential of its international operations, Hester Biosciences remains a good small-cap stock to watch out for.
Mahindra Holidays Resorts India Ltd
Mahindra Holidays has been a consistent player in the hospitality segment for a long time. The company had a decent quarter which saw consolidated profits rising drastically as the Holiday Club turned profitable. The company continues to hold large cash reserves and receivables which is expected to be used in new resort acquisitions and resort maintenance for the company. The management also stresses that despite crossing 250,000 members this quarter, they still have significant room to grow in terms of members and they are committed to using their residual member base to maintain their new member additions with referrals and network effect. It is good for the company that its international subsidiaries have started generating profits but it remains to be seen what is the level of growth these entities will provide since their revenue growth is muted. Nonetheless, given their good performance despite difficult market and economic conditions in the country, MHRIL remains a stock to keep an eye on for any investor banking on the thriving travel and holiday industry in India.
Tata Global Beverages
Tata Global Beverages has put together a formidable brand portfolio operating in both India and abroad. The upcoming merger with the consumer business of TCL may give a good boost to the company’s reach and product portfolio. The company has been buoyed up by rising volumes from the tea business and the Starbucks JV is performing very well so far. The biggest risk for the company remains its over-dependence on tea and other commodity cost prices. Nonetheless, TGB is still a good stock to look out for especially considering the potential value creation from the merger with the consumer products division of Tata Chemicals.
Varun Beverages have been one of the biggest bottlers in India and has been quite proactive in international expansion for some time now. They have successfully acquired exclusive rights for Pepsi bottling and distribution in West and South India which has helped them achieve phenomenal volume growth. The company has also seen very good organic growth across all of their territories and have maintained that it will continue its growth pace on the back on increased rural penetration and greater consolidation in new territories. The company has raised equity which it has used to pay off some of its existing debt and has also issued interim dividends. The company’s foray into ambient milk beverages is encouraging but it remains to be seen how it will capture market share in an already crowded market. Nonetheless, given the rapid rate at which the company has grown in the recent past and the potential for increased penetration into rural markets, Varun Beverages is a good stock to look out for, particularly given their performance so far this year.
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