This is the 6th 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.
ITC
ITC has been one of the biggest conglomerates in the history of modern India. The company has done well to diversify into other FMCG segments and build many leading brands like Aashirvaad, Bingo, etc. The company has seen a mixed performance in the current quarter with its FMCG-Cigarettes still not recovered to pre-covid levels and the FMCG-Others doing very good and rising steadily. The company is doing well in maintaining a leadership position in many of its brands and always introducing new products under these brands. The company has shown resilient growth in its FMCG segment due to the increase in at-home consumption and the migration towards trusted brands in the food space. It has also done well to expand the manufacturing capability of Savlon Brand and to capitalize on the demand surge for Health & Hygiene products by introducing many new products under the Savlon brand. It remains to be seen whether there are any more disruptions in the future from COVID-19 and how long will it take for the Hotels business to get back to its feet. Nonetheless, given its history of building and maintaining durable brands, its leadership in various operating segments, and its mammoth cash-generating ability, ITC remains a critical stock to watch for any investor interested in the themes of FMCG and consumption.
KRBL
KRBL is one of the biggest sellers of basmati rice in the world. It has built up a long-standing legacy of more than 120 years and enhanced it using modern technology to make the process from grain to pack as efficiently as possible. The company has done well with consumer pack demand rising fast and bulk packs demand coming back to pre-Covid levels. The company is also expecting to see a demand resume from Iran which is good for exports. The company is doing well to reduce its dependence on working capital loans by investing its cash flows into building inventory. It has also seen good growth and rising demand in the health foods segment of >39% in H1. It remains to be seen how the company will evolve to the new packing and shipping norms due to COVID-19 and whether the company will able to reach its previous heights in Saudi Arabia and get back from the Balsharaf issue. Nonetheless, given the company’s long-standing brand image, its resilient operations and export structure, and its focus on maintaining its strengths and developing new avenues, KRBL may turn out to be a prime wealth creator in the next few years.
Tata Consumer Products
Tata Consumer Products has a very good product portfolio in diverse F&B segments and strong brands like Tata Tea under its umbrella. The company has seen good growth in both value and volume terms across all segments, especially in the tea and salt businesses. The company has a good opportunity for growth in the staples segment with Tata Sampann which saw good traction in the quarter. It was also able to pass on the increase in tea and salt prices directly to consumers without losing any market share thus highlighting the brand’s strength. It remains to be seen how the company’s wholesale businesses which was the worst hit from COVID-19 fare going forward and how the company will fare against other branded players like ITC in the fast-rising branded staples category. Nonetheless, given the company’s leadership position in its top brand segments, its enhanced distribution-reach after the merger, and the incoming synergies and benefits from integration, Tata Consumer Products remains a good FMCG stock to watch out for.
Varun Beverages
Varun Beverages have been one of the biggest bottlers in India and has been quite proactive in international expansion for some time now. The company has seen a good recovery in the quarter with a big rise in margins. Post lockdown demand seems to have stayed resilient as in-home consumption has risen along with juice consumption as on-the-go consumption slowly comes back to normalcy. It remains to be seen whether there is a further economic disruption in the future from COVID-19 which may have severe second-order effects on the company’s performance. Nonetheless, given the resilient sales network, the rising demand for the company’s products, and the arrival of the peak season for the beverages industry, Varun Beverages is a good consumption stock to watch out for at present. However, as it is a capital intensive business, the current pandemic can put a strain on the Balance Sheet which is already laden with debt. The valuation at current levels does not provide any margin of safety.
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