This is the 6th post in our quarterly result update series for Q1FY21.
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.
Blue Star is one of the largest cooling solutions providers in the country. It is one of the biggest branded players in the RAC market. The company has seen a massive decline in revenues and profits for Q1FY21. The major reason for this performance was the disruption in sales across all divisions from COVID-19 and lockdown especially in the unitary business where sales didn’t happen in the majority of the peak season. The company has done well to keep enough inventory to meet demand after the lockdown opened. It remains to be seen whether the estimations of industry revival remain on track as mentioned by the management and whether there are further disruptions in store from the evolving COVID-19 situation. It will be interesting to see how the company will achieve its ambitious target of expansion and capture of 2.5-3% market share in the nascent water purifier segment which currently stands at n0 market share. Nonetheless, given the company’s strong market presence, its history of successfully completing EMP projects, and its robust presence in semi-urban and rural India, Blue Star is a pivotal white goods stock to watch out for.
MHRIL is the leading vacation ownership company in India. It has a unique business model where the company funds its Capex from customer’s advance money. Because of this model, they are in a much better position against other hotels in terms of Balance Sheet strength. The cash of around 776 Cr on the books gives them the comfort to tide the storm of COVID. The company is looking to use this cash to buy out good properties at distressed valuations in the current COVID pandemic. The company is also doing well to expand on its short term offering of Gozest which can be used to convert to 25-year memberships in the future. Moreover, HCRO is doing much better with a swift come back to normalcy in June. Even though travel and tourism is a sector which seems to take a long time to recover and come back to normalcy, MHRIL has the firepower (read Balance Sheet strength) to make some interesting moves. It remains to be seen how long will it take for sentiments to normalize in the travel sector and whether the company will be able to capitalize on its resilient balance sheet and cash reserves to make any aggressive moves. Nonetheless, given the company’s resilient model and the current valuation being close to its replacement cost, MHRIL can turn out to be a pivotal travel sector in the times ahead.
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 newly merged entity of Tata Consumer Products aims to leverage the synergies and brand building experiences of the company and new CEO to forge a new FMCG major in India. The company has seen good growth in both value and volume terms across all segments except NourishCo & Starbucks. 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 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 have 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.
Thomas Cook is the biggest travel company in India in terms of reach. They have been innovators in the sector for more than a century now. The company is going through the toughest of times with the travel industry being hit hard due to COVID-19. The management is doing well to use this period of slow operations to focus internally and improve the cost structure and operations of the company while seeking to reimagine how the industry will be changed from the ongoing pandemic. The company has taken encouraging actions like engaging in the COVID negative end-to-end services and the acquisition of Dnata’s corporate travel portfolio of 130 corporate houses in India. It remains to be seen how long it will take for things to normalize for the travel industry and how consumer behaviour will evolve from COVID-19. Nonetheless, given the company’s resilient balance sheet and the management focus on improving the internals of the company and to focus on new avenues for the industry, Thomas Cook seems to be a resilient travel industry stock in an industry plagued with shutdowns and bankruptcies these days.
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.