This is the seventh 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.
Intellect Design Arena
Intellect Design Arena is a fast-rising disruptor in the digital transformation space for financial institutions. The company’s products are well received all over the world which is evidenced in the diverse set of geographies and financial institutions that they cater to. The current quarter was not good for the company with the company incurring losses at the PBT level. The company was again unable to recognize revenues of $5 million that it has received because of pending documentation. This is a result of the expansion of the contract completion cycle for the company. The company has seen good growth in some of its newer segments like SaaS. It remains to be seen whether the company will get back to the growth path as fast as the management has proposed or whether there will be any other headwinds that will put pressure on the company. Nonetheless, given the acceptance of the company’s products in all kinds of financial institutions worldwide and its high customer retention rate and accelerated implementation time for its projects, Intellect Design Arena remains a stock to watch out for in the financial software industry.
ITC Ltd
ITC has been one of the biggest conglomerates in the history of modern India. The company has done well to diversify into other FMCG segments and build many leading brands like Aashirvaad, Bingo, etc The company has seen good performance in the current quarter with good revenue and EBITDA growth in its FMCG-Others and the Hotels business. The company is doing well in maintaining a leadership position in many of its brands. The company has shown resilient growth in its FMCG segment despite the current industry slowdown. It remains to be seen how long will it take for the company to bring up the earning power of its new segments and how will the future of the cigarette industry pan out in the country. Nonetheless, given its history of building and maintaining durable brands, its leadership in various operating segments and its mammoth cash-generating ability, ITC remains a critical stock to watch for any investor interested in the themes of FMCG and consumption.
Mayur Uniquoters Ltd
Mayur Uniquoters has been one of the biggest artificial leather makers in the world. But the company has been through a rough patch in the past few years with stagnant revenues and decline of the unorganized footwear segment which was a big revenue generator for the company. The company has stayed resilient in maintaining and even improving its margins. The company is making good inroads into the auto-export segment. The company has already started commercial production in its PU. It is also seeing good demand coming in from new auto entrants like MG where the company is 100% supplier for artificial leather. The management remains confident of the product’s technical and quality edge. It remains to be seen how long the current slow auto environment continues and how long will it take for the management vision to materialize. Nonetheless, given its dominant market position both in the domestic and export segments and the management’s focus on not compromising on quality no matter what, Mayur Uniquoters remains a good small-cap stock to watch out for.
MHRIL
Mahindra Holidays has been a consistent and the largest player in the vacation ownership segment for a long time. The company had a good quarter which saw consolidated profits rising well mainly on the back of room additions in the year so far. The company continues to hold large cash reserves and receivables which is expected to be used in new resort acquisitions and CAPEX for the company. The management also stresses that although the high sales and marketing expenses that the company is incurring currently, once it has established its brand presence, the brand pull will bring customer acquisition costs down for the company which will lead to even better profit generation for the company. The management is also very optimistic about its prospects in the standalone business and has accordingly planned for a good number of room additions in multiple high traffic locations like Goa. It remains to be seen whether the company will be able to maintain its member growth rate given the current economic slowdown persisting and the multiple headwinds faced by the travel industry. Nonetheless, given the company’s resilient performance in tough industry conditions and its ever-increasing revenue pool, MHRIL is a good stock to watch for any investor banking on the travel and leisure theme.
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