This is the fourth post in our quarterly update series for Q4 FY19.
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 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.
Allcargo Logistics
Allcargo Logistics is engaged in providing integrated logistics solutions and offers specialised logistics services across multimodal transport operations, inland container depot, container freight station operations, contract logistics operations and project and engineering solutions. It has shown good performance for FY19 and hopes to continue the good form into FY20. The company has big capex plans in place to consolidate their Logistics Parks division which is largely expected to be done without incurring much debt. They are also phasing out their shipping business due to falling ROCEs in the industry.
Ashok Leyland
Ashok Leyland is an Indian automobile company headquartered in Chennai, India. It is owned by the Hinduja Group. Founded in 1948, it is the second largest commercial vehicle manufacturer in India, fourth largest manufacturer of buses in the world and 10th largest manufacturer of trucks globally. They have consistently proven themselves over the years as the market leader in India for HCVs. They have shown that they are ready to tackle new issues like the upcoming BS VI norms and stay proactive on new trends in the LCV industry like electrification. Even if domestic auto market is largely expected to be muted, the company is looking for new sources of growth like export market and other segments in the LCV segment where they have not penetrated yet.
Balkrishna Industries Ltd
Balkrishna Industries Limited (BKT) is a tire manufacturing company based in Mumbai, India. Balkrishna Industries manufactures off-highway tires used in specialist segments like mining, earthmoving, agriculture and gardening in five factories located in Aurangabad, Bhiwadi, Chopanki, Dombivali and Bhuj. The company is now experiencing pressure on demand and high raw material prices as the rest of the industry. Thus the management has guided for a modest volume growth of 3%-5% only for the next financial year. Although this demand pressure is mainly present in export markets, there is significant room for growth in the domestic market where the company entered late. Nonetheless, it remains to be seen how the company navigates the increasingly tough export environment, gain market share and increase its capacity utilization.
PI Industries
PI Industries have been one of the most consistent performers in the agrichemicals business. They have performed reasonably well on the domestic front despite the slowdown in the Indian agricultural market last year. Moreover, the export growth of the company has been phenomenal and is expected to persist in the near future. The company is planning to undertake some massive capex to be able to service the rising demand from export commitments. However, achieving the current rate of sales growth on a higher base could be a challenge for the company going forward. Nonetheless, PI Industries is a very good bet on the agrichemicals segment particularly with worldwide agriculture yields to rise in the near future and the expectation of a normal monsoon on the domestic front.
Tata Motors
Tata Motors continues to be on the slow path to recovery from the sharp drop in performance due to the China sales slowdown and the company has been very prudent and efficient in focussing on achieving their proposed turnaround as soon as possible. The coming financial year is expected to be tough for JLR though there are encouraging signs originating mainly from the USA presence and the good demand for their award winning EV car line-up. Thus we can expect flat to modest performance from JLR for FY20. On the other hand, Tata Motors India has been on the rise in FY19 despite slowdown in the domestic auto market. This augurs well for the company as they look to enhance their domestic presence and gain market share going forward. Thus, it remains to be seen how well the company can adhere to its ‘Turnaround 2.0’ strategy and rise back as one of the biggest global auto manufacturers.
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. Even while enjoying these advantages, the company has gone through the same problems of rising costs and dipping profits as the rest of the industry. But even then the management of the company is confident in its brand’s resilience and have identified raising gross profit margins as their number one priority. They are even ready to take some dip in volume growth if necessary to achieve their goal of driving profits. This is a hallmark of a good company where they are not chasing short terms gains of maximising revenues and instead focussing on maintaining company reputation and delivering long term value generation by focussing on making their business more profitable. Thus, VIP presents itself as a decent investment option for anyone willing to put money on the luggage segment and indirectly the travel theme.
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