This is the 4th post in our quarterly result update series for Q3FY21.
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.
Apcotex had its best ever quarter with its highest revenues, sales volumes, EBITDA and profits on record. The margins have also risen above 14% for the company due to better product mix and low RM prices. The company is now focusing on capitalizing on the strong demand for gloves and is concentrating on expanding sales for XNB latex for gloves. The antidumping petition by the company is still pending approval and this has caused the management to maintain its pause on its plans to expand NBR production lines. It remains to be seen how the demand for the company’s products changes going forward and whether the current margins and demand profile remains sustainable. Nonetheless, given the company’s industry leading position in the domestic market, the prudent management of the company, and the management’s optimism from its on track Capex plans, Apcotex seems to be a good chemical stock to watch out for.
CCL has had a modest quarter due to the container shortage which has forced many orders to be postponed to Q4. It also saw continued high utilization at the Vietnam facility. The company’s branded business is growing well and has already reached Rs 70 Cr in sales in 9MFY21. The company is doing well to capitalize on its unique offerings and is working hard on expanding its influence. This is evident from the response seen from customers for its new cold brew product and the inquiries it is getting from export destinations. It remains to be seen how long the container shortage will last and whether the branded business will be able to maintain its growth momentum. Nonetheless, given the enormous market opportunity for the branded business in the domestic market, CCL Products may turn out to be a dark horse in the global coffee industry in the years to come.
Hester had a good Q3 with minimal impact from bird flu and despite the absence of the domestic animal vaccine tender business. The company has made good inroads in the animal health products space. The management has identified domestic demand as the primary focus for vaccine sales in the near future till they can expand capacity while animal health products will continue to be exported. It is also looking forward to the start of production in Hester Africa in the next 6 months. It remains to be seen how long the slowdown in animal vaccine tenders in India continues and how long it will take for the company to establish itself in the new space of animal health products that it has entered. Nonetheless, given its excellent technical expertise and the future potential of its international operations, and its upcoming foray into animal health products, Hester Biosciences remains a good small-cap stock to watch out for.
Sudarshan Chemical Industries
Sudarshan has had a good Q3 with domestic demand coming back robustly and export demand remaining resilient. It also has a launch schedule for 20-25 new products including 5 high-performance pigments in FY22. Sudarshan was also able to increase EBITDA margins despite a slight fall in gross margin. This was mainly due to the shift to a better product mix. It is also doing well to focus on expanding market reach in fast-growing export markets and associating with key players in the ever-rising domestic paints industry. It remains to be seen how the new products are received for the company and how long will it take for the company to reach its goal of cracking the global top 3 in the pigment industry. Nonetheless, given the company a strong position in both domestic and export markets and its steadily improving margins due to an improving product portfolio, Sudarshan Chemicals is a pivotal chemical sector stock to watch out for.
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