This is the sixth 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.
Amber Enterprises Ltd
Amber Enterprises has cemented its position as a prime AC and white good 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. The company also has a good growth opportunity arriving from the import substitution effect expected to come in FY21 onwards in the components market. It remains to be seen how the company will be affected if the disruption in China from the coronavirus persists as most of the compressors are being imported from China. Nonetheless, given the company’s phenomenal growth record and the massive opportunity in the RAC industry and electronics components market in India, Amber Enterprises remains a preferred player in the white goods industry in India.
Eicher Motors has been one of the highest-rated auto companies in India. This was mainly on the back of their successful turnaround of Royal Enfield and the emergence of the mid-sized (250cc-750cc) motorcycle market. The company is seeing impressive industry outperformance in both the RE and VECV businesses. This is evident from the fact that despite revenue and volumes declines, both of these divisions have gained market share in their respective industry segments. The company has also done well to maintain robust export growth in the year so far with exports expected to rise from February onwards as seasonal sales decline goes away. The company still faces the major challenges plaguing the industry like the likely disruption from BSVI transition and the raw material price volatility from the disruption in China. It remains to be seen whether the company will be able to maintain its promise of outperforming the industry and how its various initiatives like studio stores and Make Your Own platforms pan out in the future. Nonetheless, given its resilient performance in its various segments and the strong brand and industry position of the company, Eicher Motors remains a critical stock to watch out for every auto sector investor.
Piramal Enterprises has been one of the premier conglomerates in the country. They have built a robust and rigorous financial services business while slowly growing and building their pharma and health analytics businesses. The company continues to provide resilient performance despite tough industry conditions. It has done well to raise capital through various means showing the company’s money-raising abilities. The company also concluded the sale of the Healthcare Analytics division which was sold at a good exit valuation of 5 times EV to sales and 20 times EV to EBITDA. The company has also been proactive in developing its housing finance division consistently and in reducing large borrower exposures steadily. The company’s decision to expand into consumer finance using fintech and analytics platforms in the near future looks very promising. The company’s pharma division is also growing well with the consumer products division turning EBITDA positive this year. It remains to be seen how long will the current real estate depression keep the pressure on the company and how the path for the consumer finance and pharma divisions pans out for the company. Nonetheless, given the company’s track record of consistent performance and the management history of making good pivot decisions, Piramal Enterprises remains a good stock to watch out for every investor.
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 in general economic conditions has seen the company sales stay flat. Even in such situations, the company has managed to maintain and even improve upon its margins which is commendable. The management has time and again stated that the company will not pursue the strategy of sacrificing margins for market share that its competitors are doing. The company has an uphill task ahead with channel balancing and the risk of disruption from coronavirus. It remains to be seen how the coming quarters will pan out for the company and the industry and how the company will be able to weather any unexpected disruptions if they appear. Also, the most important thing to note for the company is how it will cover up its lost market share in the last quarter. Nonetheless, given the company’s strong market position and its enduring brands, VIP remains an important stock to watch for any investor interested in the travel and luggage market.
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