This is the fifth 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.
Cadila Healthcare Ltd
Cadila Healthcare is one of the leading pharmaceutical and wellness product makers in the country. The company has done well to maintain good growth in both India branded business and the US generic business, both of which are the biggest revenue generators for the company. It has also seen good performance in other segments like animal health, biosimilars, consumer products, etc. The integration of Heinz into Zydus has progressed well so far and has helped the company generate good revenues from the corresponding segment. It remains to be seen how the company will be able to maintain its above-market growth rate given the ever-intensifying competition in the generics business in the USA. The company also has FDA audits pending which can prove to be a downer if any negatives observations are made during this audit. Nonetheless, given the strong positioning of the company in various pharma and consumer product categories and its ever-increasing specialty product portfolio, Cadila Healthcare is an important stock to watch out for every pharma investor.
Hester Biosciences Ltd
Hester Biosciences has been a darling of small-cap picks in the recent past. The company has experienced a dip in its growth path in 9MFY20 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 its annual targets and has thus maintained its sales team growth. It remains to be seen how long the slowdown in the domestic poultry market continues and whether the company will be able to win the animal vaccine tenders and capitalize on the market opportunity. 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.
Tata Global Beverages
Tata Global Beverages have put together a formidable brand portfolio operating in both India and abroad. The upcoming merger with the consumer business of TCL is expected to give a good boost to the company’s reach and product portfolio. The company has benefitted from favourable exchange rates and commodity prices which has helped bring the margin profile up. The Vietnam plant has also been showing good performance and it is expected to bring good growth for the Tata Coffee business. The Starbucks JV has also been doing well in the year so far and is widely expected to turn EBITDA positive by the end of the year. The company is banking heavily on its new innovations like Cold Infusions and the nascent liquid segment to drive growth for the company. It remains to be seen whether the company’s efforts to boost growth will bear fruit and how will commodity prices affect the company’s performance in the future. Nonetheless, given its market positioning, wide product profile and the anticipated synergies from the upcoming merger with the consumer business of Tata Chemicals, Tata Global Beverages remains a good consumer goods stock to watch out for.
Thomas Cook is the biggest travel company in India. They have been innovators in the sector for more than a century now. The company has shown good resilience despite setbacks to the travel industry from the Jet Airways Fiasco and the demise of Cox&Kings. The core businesses of vacations, forex and MICE have shown good growth and resilient performance despite prevailing headwinds. The Sterling Resorts business is also doing good in terms of expansion and rationalizing ARR and membership growth. Given its impressive pipeline, DEI is also expected to be a good revenue generator for the company going forward. It remains to be seen how the advent and aftermath of coronavirus affect the company and the travel industry in general. Nonetheless, given its resilient performance despite prevailing industry headwinds and its seemingly low valuation post the demerger with Quess Corp, Thomas Cook seems to be a good travel industry stock to keep an eye out for.
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