This is the tenth and the final 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.
Ashok Leyland has consistently proven itself over the years as the market leader in India for HCVs. They have remained resilient in the current auto market conditions and have pushed to maintain their margins and grow their market share organically. The company has been hit hard by the drastic volume decline in the LCV and MHCV industry and the high level of discounting prevalent in the industry. The rise in material costs has hit the company hard in such times and forced it to even do plant shutdowns. It is commendable on part of the company to maintain a prudent stance and forgo deals which are loss-making. Furthermore, the management’s focus on easing dealer conditions in the short term while concentrating on export markets in the medium term shows that it has been proactive in looking to develop other revenue alternatives in times of domestic demand slowdown. It remains to be seen how the company will fare in the near future given the ongoing demand slowdown, the BSVI transition, and the widespread economic disruption caused by the coronavirus situation. Nonetheless, given its market position and its resilient performance so far, Ashok Leyland remains a pivotal auto sector stock to watch out for all investors.
Galaxy Surfactants is one of the most consistent specialty chemical makers in India. The company has done well to achieve sales volume growth despite the domestic slowdown and has even achieved profit growth despite a dip in revenues. The company suffered a revenue decline despite volume growth mainly due to a fall in fatty alcohol prices which forms around 52% of its requirements. The company has seen good growth coming from the AMET region particularly Egypt and demand in India reviving. The company has not yet seen any material positive or negative impact from the coronavirus situation. But as the demand for personal hygiene products goes up in the current environment, the company is well placed to handle any upsurge in demand. It remains to be seen how the whole situation will pan out going forward and what final impact it will have on the global economy. Nonetheless, given the company’s robust product portfolio and the ever-increasing list of both FMCG majors and niche specialty product makers, Galaxy Surfactants remains a good stock to watch out for in the specialty chemicals space.
HDFC Life Insurance
HDFC Life is one of the front runners in the life insurance industry in India. The company has gone from strength to strength and maintained a good balance of new business and existing business while consistently growing over the years. The company is also doing well to capitalize on non-traditional channels like industry partners and the internet to continue to grow its insurance business. The association with HDFC bank for its banking channel also provides the company with a very good set of potential customers. The other businesses like the pensions and international businesses have also done well and there remain significant cross-sell opportunities both through the company’s existing insurance customers set and the HDFC bank customer set. It remains to be seen how the insurance industry will be affected by the current turbulent times in the Indian economy with the structural weakness exposed by the Yes Bank debacle and the onset of coronavirus in India. Nonetheless, given its market positioning, its strong underwriting capability and the management’s focus on maintaining a prudent and efficient product mix, HDFC Life remains a pivotal insurance stock to watch out for.
Mahindra & Mahindra
Mahindra & Mahindra is the home-grown pioneer of the Indian Auto industry. They have perfected the art of making money on small volume platforms based on their expertise and low running costs. Despite the current auto sector slowdown, the company has performed resiliently and have shown their willingness to stay focused on the future. The company has done well to improve operating margins despite the current environment and is focused on its long term objective of leading the electric vehicle space in India. The company is also smoothly going on with its BSVI transition. The situation at SsangYong is not ideal at the moment with the current world auto market slowdown. But the company’s initiative on looking for partners to invest in this entity and share its burden looks to be a prudent and sensible decision. It remains to be seen how the world auto landscape will shape out to be given the slowdown and the heightened disruptions in the world from Coronavirus. Nonetheless, given the resilient performance of the company and its focus on improving operational efficiency and the upcoming line-up of product launches, Mahindra & Mahindra remains a good auto stock to watch out for, particularly at current valuation levels.
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