This is the fourth post in our quarterly update series for Q1 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 in 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.
VIP Industries
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. Despite headwinds in the air travel and tourism sector, the company has stayed resilient and achieved 9% revenue growth. The company was adversely affected by the exceptional loss from a fire at their North India warehouse. The management feels confident about recovering this loss from the insurance company in due course. The management has admitted that they do not have much idea about how long this slowdown in the industry shall persist. Nonetheless, despite trying industry and demand conditions, VIP has stayed stable and maintained their market and revenue growth position. Going forward, it would be interesting to see how VIP tackles the competition, both on the offline and online turf and maintain its strong position in the industry.
Mahindra Holidays Resorts
Mahindra Holidays has been a consistent player in the hospitality segment for a long time. Considering the long term nature of their unearned revenue which is set to grow considering the change in accounting changes, the company seems to be set on making the most of the situation and enable long term value creation by improving margins using innovative operational initiatives and rigid cost control. The company has seen its highest ever occupancy rate along with their highest room capacity and their Holiday Club subsidiary is on its way to turning profitable in FY20. Despite the headwinds that the travel and tourism sector has faced from the Jet Airways fiasco, MHRIL has stayed resilient and strong on their performance. It remains to be seen whether they are able to continue the same performance standards that they envision in the near future. Nonetheless, based on their current quarter performance, their strong cash position, revenue book, and their increasing member count, MHRIL remains a prime stock to watch out for any investor banking on the theme of holiday and tourism.
Tata Motors
Tata Motors continues to be on a very slow path to recovery. The performance in JLR has not been encouraging with a 2.8% fall in revenues with a more than 10% fall in volumes. The domestic business of Tata Motors has been hit badly due to the domestic auto slowdown. This fall in domestic demand for the auto industry is expected to persist for a while and is expected to keep industry volumes down. Despite all this, the slow revival of JLR and their rising sales figures in China seem like a good omen for the company. The company still faces a massive risk event in Brexit and has spent a lot of money and effort in planning to stand ready in case of the adverse event of “No Deal”. It remains to be seen how the company will fare in the economically and politically turbulent time to come ahead. Due to sustained poor performance through several quarters, the stock has been battered consistently in the last year.
Balkrishna Industries
BKT has been a rising player in the off-road tires business for years now. They have indeed suffered from volume contraction of 10% YoY but they remain optimistic of gaining market share as the industry decline has been more severe at more than 25%. The company has stayed true to its commitment to increase brand presence to drive growth in India and abroad, all of which is evident from its various branding initiatives and incremental advertising costs. The company has also shown that they are agile enough to reverse big strategic decisions like moving away from the US expansion in lieu of the current macro environment. As mentioned above, the industry is in a slowdown phase and it remains to be seen how long these conditions persist. Nonetheless, BKT remains a good stock to keep an eye on considering its resilient performance despite the industry slowdown and the commitment to keep raising its market share even in such tough conditions.
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