This is the 4th post in our quarterly result update series for Q4FY21.
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.
HDFC Life Insurance Ltd
HDFC Life has done well to outpace industry growth in Q4 and clock NBM of 26.1%. The results show a sustained rise in Individual WRP, its market share and renewal premium remains strong outpacing the industry growth. The company has also done well to extend partnerships with various banks and SFBs in FY21 which should lead to higher penetration in tier 2 & 3 regions. It also maintains that the opportunity in annuity space which is even bigger than the protection opportunity. It remains to be seen whether the situation ahead unfolds with the rise of the 2nd wave of COVID-19 & how will the industry change from its long-term impact of COVID-19 (Long COVID). Nonetheless, given the company’s market positioning, its dynamic product portfolio, and its emphasis on the development of non-traditional channels and innovative products, HDFC Life remains a pivotal insurance stock in the country.
Kotak Mahindra Bank
Kotak bank has performed well in Q4FY21 with 33% sales growth and 36% PAT growth. The company has done well to keep its books resilient and remains committed to expanding on the secured lending side while remaining cautious on the unsecured side. It has also seen a good rise in the digital channels with 94% of savings transactions occurring digitally. The bank still has 2 years and 7 months in the tenure of Uday Kotak as CEO and has assured that it will complete all procedures in time and maintain the growth state of the bank. It remains to be seen how the lending segments are affected going forward by the 2nd wave of COVID-19 and how long will it take for the bank to bring in operating leverage from its digital technology to compete with other players with its low branch density plan. Nonetheless, given the bank’s track record and the capability and vision of the management over the years, Kotak Mahindra Bank remains a pivotal banking stock for every Indian investor.
Mahindra Holidays
MHRIL saw a good standalone performance in India with resort occupancy rising to 85% in Q4 and 465 new room additions. It has a big cash chest of above Rs 940 Cr which it plans to utilize to expand room inventory to 5500 rooms and in resort acquisitions in both major states and new states. Although it has done a one-time cancellation of overdue 13962 overdue members, the overall impact was mitigated to a large extent due to adequate provisions. On the other hand, HCRO has seen performance fall due to limited operations and resort closure. But the management remains confident of HCRO’s prospects shortly as the vaccination speeds up in Finland. Even though travel and tourism is a sector that seems to take a long time to recover and come back to normalcy, MHRIL is utilizing its firepower (read Balance Sheet strength) to continue its expansion plans in Goa and other sites. It remains to be seen how long will it take for sentiments to normalize in the travel sector especially given the rise of the 2nd wave of COVID-19 in India, and whether the company will be able to capitalize on its resilient balance sheet and cash reserves to make any aggressive moves on Capex. Nonetheless, given the company’s resilient model and the current valuation is not too far from its replacement cost, MHRIL can turn out to be a pivotal travel sector stock in the times ahead.
Varun Beverages
VBL has seen a good YoY recovery in the quarter with sustained margins. Although the local lockdowns have dampened out of home consumption, the broad demand looks to be steady at the moment. VBL has also seen good growth in 3 key categories of Tropicana, Sting and Mountain Dew Ice, which are expected to be big growth drivers once they scale up in the future. The company has also done well to shield itself from commodity price pressures by procuring PET resin earlier on and stocking enough requirement to last till Oct. It remains to be seen whether there is a further economic disruption in the future from the resurgence of COVID-19 cases in the peak season of April to June which may have severe second-order effects on the company’s performance and. 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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