This is the first 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.
HDFC AMC is the leading mutual fund house in India. It is the market leader in actively managed equity funds space and a trusted mutual fund provider for individual investors which is evident in their high individual account numbers and AUM. The company continued its impressive growth and has cemented its status in the market by maintaining its market shares in different categories. The company has also been able to achieve good profit growth in both the Q3 and 9M periods. It remains to be seen how the Indian economy shapes up in the near future and what challenges the company will face going forward. Nonetheless, given the stellar market position of the company and its performance record, HDFC AMC remains one of the best investment options in the MF industry. Valuation is very stretched at more than 50 times trailing earnings for sure. However, due to the stability of the business, market leader profile and under-penetration of the MF industry in India, it would be hard to find the stock at attractive levels.
Sterlite Technologies saw moderate revenue decline in the current quarter. The sales volume for the company has been contracting and the management has indicated that it expects volumes to stay flat for the year. Despite the dismal quarter, the company saw encouraging signs from the good acceptance of its value-added products like Trueribbon and Stellarfibre. The company plans to overturn this fall in volumes by expanding and selling in new geographies that it has reached this year. Furthermore, it is also looking to enhance its realization by engaging and instituting cost savings initiatives. The company’s performance in the services business has been encouraging with the company expecting to gain more orders both from defense forces and citizen networks. It remains to be seen whether the company will be able to bounce back as quickly as the management expects. But given the company’s market position and the increasing importance of fast and secure networks going forward, Sterlite Technologies remains a potentially good growth stock to watch out for.
The company had a good quarter with good sequential growth and expansion in all operating sectors. The management expects the current growth momentum to persist and cover for the decline in the past 2 quarters and maintain flat growth for FY20. The company has seen good growth in the emerging medical space and is seeing good signs of growth revival from the auto sector. It remains to be seen whether this expected auto sector revival remains sustained and whether the company will be able to grow its medical space business at the pace that it is expecting. But given the company’s expertise in disruptive technologies like autonomous cars and product engineering in diverse sectors like OTT and medical devices, Tata Elxsi remains a potentially good stock to watch out for.
Ujjivan Small Finance Bank
Ujjivan Small Finance Bank has been one of the top players in the SFB industry. It is the biggest company in this sector in terms of geographical reach. The company has done well to deliver a good performance in Q3 after its bumper listing. Despite all the growth momentum on its side, the management remains cautious and have been proactive in handling signs of industry overheating like the one that happened recently in Assam. The management has also indicated that the company will now be pursuing a more moderate pace of growth and expansion as compared to the recent past. It remains to be seen whether the company will be able to maintain the same growth momentum despite slowing down its expansion plans in the near future. Nonetheless, given the company’s geographical reach and stellar performance in the past, Ujjivan SFB remains one of the top choices for investors interested in the themes of microfinance and micro-banking. Valuation is stretched for sure at more than 5 times FY19 book value. An investor looking to invest must carefully weigh the growth opportunity vis-a-vis the risks attached to the sector.
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