This is the fourth post in our quarterly update series for Q4 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.
ICICI Prudential Life
ICICI Prudential Life is one of the front runners in the life insurance industry in India. The company has established itself as one of the mainstays of the private insurance industry since its start more than 40 years ago. The company has done well to shore its reserves and maintain balance sheet resilience in the face of the ongoing crisis. The performance of the company’s protection business is particularly encouraging. The management has stated that during the upcoming uncertain tomes, the company shall focus on maintaining its solvency, reducing costs, and promotion of its fast-growing protection business which is expected to increase in demand as the COVID-19 situation goes forward. But the company could still face major hurdles in its path from the uncertainty in equity markets and the reliance on ULIPs which are still the most sold products for the company. It remains to be seen how the COVID-19 situation unravels and how the company adapts and maneuvers the uncertainty ahead. Nonetheless, given the company’s market position, storied track record, and reach in the market, ICICI Prudential is a pivotal insurance stock to watch out for.
Indian Energy Exchange
IEX is the first and largest energy exchange in India providing a nationwide, automated trading platform for physical delivery of electricity, Renewable Energy Certificates, and Energy Saving Certificates. It has a very asset-light business model and a strong Balance Sheet. In the last several years it has done well by constantly adding new products and improving offerings for the participants on its platform. With the share of renewable energy rising in the total energy consumption, the future of IEX looks very exciting. However, it seems that competition in this sector is also increasing at a rapid pace. It remains to be seen how the whole COVID episode plays out to understand its impact on IEX. However, the company seems to have the financial muscle to tide over the disruption of COVID. It is still very early days in the power exchange market. However, as on the date, IEX looks like a pivotal player in this industry.
Kotak Mahindra Bank
Kotak Mahindra Bank is the second-biggest private bank in the country by market capitalization. It has deservedly earned its stellar reputation over the years. The bank has performed very well in FY20 with more than 31% growth in deposits despite instituting two savings rate cuts in the year. The company has also managed to achieve savings deposit growth in April and May despite instituting the latest savings rate cut in April itself. It is a testament to the vision of the management that even in such trying times of COVID-19, the aim of the bank is to better its underwriting processes looking at future potential, institute cost savings and focus on digital and technology to stay agile and take advantage of upcoming opportunities in the banking space. It remains to be seen how the COVID-19 situation will unravel and what final impact it will have on the company’s performance and the performance of the vulnerable but essential MSME sector. Nonetheless, given the bank’s track record and the capability and vision of the management over the years, Kotak Mahindra Bank remains a pivotal banking stock for every Indian investor.
Sterlite Technologies saw a big revenue and profit decline in the current quarter. The company has had a dismal quarter mainly due to delays in sales and project implementation in the last 2 weeks of March. The management expects Q1 to be tough for the company with subdued demand mainly due to logistical issues. The way forward for the communications industry seems to have been pushed towards data much faster due to COVID-19. As remote working and cloud infrastructure becomes more and more relevant, the demand for an end to end network solutions providers like Sterlite is also expected to rise. The company is making good investments and partnerships in the industry to enhance its capabilities and take advantage of the upcoming demand wave for stronger networks and more and more data centers. It remains to be seen how the uncertainty around COVID-19 unravels and how fast will the company be able to adapt and take advantage of the post COVID world. Nonetheless, given the company’s capabilities in providing integrated and tailored network solutions, its expanded production capacity, and long-running order, Sterlite Technologies looks like a pivotal stock to watch out for in the communications technology space.
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