This is the 4th post in our quarterly result update series for Q2FY21.
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 is one of the very few synthetic rubber makers in India. The company had a very good quarter with an EBITDA margin expansion of more than 800 bps and its highest ever quarterly sales volumes. Exports were encouraging but the domestic demand has bounced back well for the company. The company is now focusing on capitalizing on the strong demand for gloves and is concentrating on establishing a direct facility for making latex for gloves in its Valia plant while servicing current demand with some of its machines that have been modified to make 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 position, the prudent management of the company, and the company’s optimism as deduced from its increased Capex plans, Apcotex seems to be a good chemical stock to watch out for.
Bajaj Finance is one of the fastest-growing NBFCs in India today. The company has done well to bounce back quickly from the post-COVID situation and has seen good traction across most categories. The company has done well to convert many of its term loans to Flexi loans, increasing customer convenience, and earning fee income along the way. It has also remained conservative by taking the decision to front-load losses and backload income. It remains to be seen whether there are any further disruptions in place from the evolving situation from COVID-19 in India and how it will impact the company’s operations. Nonetheless, given the company’s strong market position, the management drive to derive new opportunities through the use of data and technology, and its strong balance sheet position, Bajaj Finance remains a pivotal NBFC stock for all Indian investors.
Hester Bio has had a tough time this year with the recession in the poultry industry and delays in the animal vaccine tenders. But Q2 has seen good performance which has also helped the company see some marginal growth in sales in H1. The company has made good inroads in the vaccine space and is also looking to capitalize on a new vaccine opportunity for LSD. The management has done well to clearly identify the growth path ahead with the focus to expand into the health products which has greater potential and lower development complexity in contrast to vaccines. It is also looking to capitalize on its resident vaccine development expertise to establish itself in human vaccines. It remains to be seen how long the slowdown in animal vaccine tenders in both India and abroad continue 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 their 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.
PI Industries have been one of the most consistent performers in the agrichemicals business. The company saw a phenomenal performance in Q2 on the back of normal monsoons, the addition of Isagro, and the focus on increasing the quality of channel management and digital marketing. The company was able to successfully raise Rs 2000 Cr through QIP. The company has raised enough funds to be able to directly acquire entities that will immediately give the ability to start manufacturing those products which they are researching but do not have any manufacturing capacity for. It remains to be seen whether there are any other disruptions in-store from COVID-19 or whether the company will be able to match its lofty guidance for growth in all segments. Nonetheless, given the company’s strong track record, strong tailwinds of the industry, a good agricultural season, and opportunities arising from the China substitution phenomenon, PI Industries remains a pivotal agrichemical sector stock to watch out for.
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