This is the fourth 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.
Amber Enterprises has cemented its position as a prime AC and AC components manufacturer in India. They have achieved phenomenal growth in the current quarter and the management remains optimistic about their prospects for the rest of the year. The performance in this quarter has indicated that the seasonal fluctuations for the industry are decreasing which is good for the company in the long term. The performance of the subsidiaries has been very encouraging and hints at other potential avenues for growth for the company. So far the industry has not been adversely affected by the current economic slowdown like other home appliances like TV. It remains to be seen whether the industry and the company shall be able to stay immune from the economic conditions in the future as well. Nonetheless, given their high position in the industry and overall growth prospects of the air conditioning industry, Amber Enterprises remains a good stock to watch out for, particularly since it is yet to come up to its IPO price levels despite delivering strong revenue and volume growth since its IPO.
Intellect Design Arena
Intellect Design Arena is a fast-rising disruptor in the digital transformation space for financial institutions. The company’s products are well received all over the world which is evidenced in the diverse set of geographies and financial institutions that they cater to. The current quarter was not good for the company with the company incurring losses at the PBT level. The main concern here is the volatility of the product revenues and deferment of deals that have caught the company off guard. The company has an impressive pipeline of deals and have also initiated a good amount of deals in the quarter but their actual cycle time for these deals to get approved and generating revenues is getting longer and this poses a risk to the company which is still not cash flow positive on a yearly basis yet. However, the technological expertise of the company and the wide acceptance of their diverse range of products across all segments of the finance industry is what makes Intellect Design Arena an undervalued stock with good potential, despite the variability in revenues and profit booking.
Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as market leaders in the fabric care and dishwashing segment. The performance of the company so far in H1 was modest with only 5.6% consolidated revenue growth. The fabric care and dishwashing segment which has been the mainstays for the company has maintained its steady growth trajectory and the company is moving forward with plans to enter new geographies with their existing product portfolio. The household insecticides segment which has been subdued for some time now has shown signs of revival and the import restrictions on agarbathis and the government crackdown on spurious agarbathis should provide a boost to the ailing industry and the company is expected to benefit from the same. It remains to be seen how the company will be able to capture the spare market share in the agarbathi segment and how fast will the household insecticides segment revive. Nonetheless, given its strong brand portfolio and good market shares in respective categories, Jyothy Labs is a good FMCG stock to watch out for, particularly given the relative undervaluation with respect to the peers in the FMCG industry.
VIP has been the market leader in the soft and hard luggage segment in India for a long time now. The company is one of the biggest luggage manufacturers in the world by volume. Due to headwinds in the air travel and tourism sector, and the slowdown of the economy, the sales for the company have stayed flat and profits have fallen. The management has further guided that it expects a muted growth of <10% in FY20 and it will be focusing on maintaining their margins and not indulge in aggressive discounting to gain temporary market share. It seems to be good communication on the part of the management that they have made their guidance and expectations clear to the investors. The big win for the company was the improved negotiated terms with Chinese suppliers which should help maintain margins at current levels despite demand slowdown. Nonetheless, given its industry position, general brand strength and operational history, VIP remains a good company to watch out for.
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