This is the first post in our quarterly update series for Q1 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 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.
CCL has already established itself in the wholesale coffee space for many years and their foray into branded sales through Continental Coffee label has been very encouraging. Given the expected demand for the higher margin freeze dried coffee, the company is expected to perform well as long as the demand for this product pans out. It remains to be seen whether the company can achieve their guided volume growth target of 15-20% as the numbers for Q1 have stayed stagnant although this can be attributed to the seasonal fall in demand for all forms of coffee. Nonetheless, CCL remains an interesting company for people looking to invest on the theme of growing coffee consumption both in India and abroad.
Sterlite Technologies is continuing on the path of revenue and profit expansion as new projects are getting executed. The company has done well to bring up the revenue contribution of the services segment to 40% of total revenues. Market was worried about the promoter group pledging of shares for some time. In the month of June, the company has resolved that by removing the pledge. Sterlite Tech has time and again emphasized the potential for growth of its segment in India and it is in pole position to capture any such opportunity. This is evident from the big projects of Mahanet and Indian Navy. But the road to this big opportunity is still long and it remains to be seen how market reacts to these development going forward. At the moment, the price of the shares reflect extreme pessimism from investors. It seems like there is still an overhang of the pledging issue in the minds of investors. Nonetheless, Sterlite Technologies is a company to watch out for any investor believing in the theme of optical fibre networks and 5G transition for India.
HDFC Asset Management Company
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 is also going well in the liquid funds space where it is steadily gaining market share and rising to the top of this segment. But as any other mutual funds house, the company is vulnerable to volatile markets and general investment sentiments. Nevertheless, given the trust shown in the company’s products and the under penetration of mutual funds and general investment in the country as compared to other major economies, HDFC AMC seems like a solid bet for anyone looking to invest in the theme of increasing investment and mutual funds. However, valuation of HDFC AMC at CMP appears to be very steep.
Tata Elxsi have been one of the few Indian companies that have focused exclusively on advanced technologies and integrated product design. The company has suffered from lower orders from their biggest client JLR and are busy developing other areas like broadcast & communications and medical services. The company management have also indicated that they are currently evaluating options for new verticals which is encouraging as it shows their efforts to reduce their dependence on key client risk especially JLR and the auto sector clients. But it remains to be seen how fast the company can bring these upcoming verticals up to match the missing revenues from the auto sector or how fast the current auto sector slowdown will end and bring a reversal in fortunes for them. Nonetheless, Tata Elxsi remains a company to lookout for given their pedigree in product design and their technological excellence and should be in the radar of any investor banking on the theme of such technologies.
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