This is the eighth 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.
If you don’t want to miss these updates, please subscribe to our mailing list.
Please click on the read more button for more details on each stock.
Apcotex Industries
Apcotex is one of the very few synthetic rubber makers in India. The company has faced its worst quarter in recent years. The company saw a revenue decline of 33% YoY with losses of around Rs 1 Cr in Q3. This was due to a variety of factors including the current auto sector slowdown, decline in the carpet industry and the prevailing price difference in monomers in the EU and India. The management believes the worst is over for the company and the damaging price difference has started to normalize. The carpet industry has also seen good demand in Q4 so far. It remains to be seen how long the auto sector slowdown goes on for and whether the company will be able to mitigate some of its adverse effects with its cost savings and operational efficiency initiatives. Nonetheless, given the company’s strong position in the synthetic rubber segment in India and the company’s past performance record, Apcotex remains a good stock to watch for, particularly at the current attractive valuation.
Balkrishna Industries
BKT has been a rising player in the off-road tires business for years now. They have indeed suffered from volume contraction of 14% YoY but they remain committed to the CAPEX plans. The company has stayed true to its commitment of increasing brand presence to drive growth in India and abroad, all of which is evident from its various branding initiatives and incremental advertising costs. As mentioned above, the broad industry is in a slowdown and it remains to be seen how long these conditions persist. Nonetheless, BKT remains a good stock to keep an eye on considering their resilient performance and their efforts to keep margins stable and maintain their pricing advantage over their competition in such difficult industry conditions.
Jyothy Labs
Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as market leaders in the fabric care and dishwashing segment. The performance of the company was tepid in this quarter due to a slowdown in the economy. Rural demand was very subdued compared to urban demand. It remains to be seen how the company will be able to come out of this slowdown in demand. They have maintained the policy of not extending credit to distributors. However, working capital has been stretched for channel partners. The company has helped the channel partners reduce the inventory levels. Management has refrained from making any guidance for FY21 as it is difficult to anticipate the market movements currently. Nonetheless, given its strong brand portfolio and good market shares in respective categories, Jyothy Labs is a good FMCG stock to watch out for, particularly given the relative undervaluation with respect to the peers in the FMCG industry.
PI Industries
PI Industries have been one of the most consistent performers in the agrichemicals business. The current quarter was very good for the company with growth in both domestic and export businesses. The company is now looking to capitalize on its strong product pipeline and diversify into adjacent verticals like specialty chemicals or pharma. The management is looking to raise around Rs 2000 Cr to grow the company organically and expand into these new verticals. The company is also adding new capacities through new plant additions and the addition of the manufacturing assets of its latest acquisition Isagro. Despite all these positive developments, the management reassures that it remains cautious and will not be aggressive in its investment and capital allocation. It remains to be seen how the summer pans out for the domestic business which suffered due to erratic Kharif crop season last year. Nonetheless, given the strong product pipeline, robust business channels in both export and domestic business and the promise of new revenue sources from adjacent verticals, PI Industries remains an important stock to watch for any investor interested in the complex chemical space.
If you don’t want to miss these updates, please subscribe to our email list.
And don’t hesitate to reach out to us if you have any questions.