This is the 8th 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.
Cupid Limited
Cupid has had a mixed quarter revenue growth of 9% YoY and flat PAT growth. The company seems to be well placed with a strong order book ensuring revenues of more than Rs 121 Cr. It is seeing renewed demand for male condoms and has also been able to improve the margin on this segment to 25%. The company is also looking to expand in the medical testing space and has already serviced Rs 8.3 Cr of orders. It also expects this business to bring in sales of Rs 50 Cr in FY22. It remains to be seen how the COVID-19 situation pans out for Cupid in South Africa and what challenges the company faces in its foray into the medical devices field. Nonetheless, given the company’s long history of expertise in this field and the consistent sales growth and expanding order book, Cupid is a good small-cap stock to watch for.
Heidelberg Cement India
HCIL has had a mixed quarter with a fall in realization and margins but volumes saw growth in Q3. The company has done well to maintain growth despite the overall industry decline YoY. The realizations were down in Q3 due to partial shutdown of the conveyor belt for upgradation and the company using Line 1 to substitute for lost capacity. It remains to be seen whether the company will be able to match the competition which is operating in a much larger addressable market as compared to HCIL. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the pricing power it has, Heidelberg Cement India can prove to be a pivotal cement sector stock going forward.
ITC Limited
ITC has seen another mixed performance in the current quarter with its FMCG-Cigarettes still not recovered to pre-covid levels and the FMCG-Others doing very well 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 in the health & hygiene space which was witnessed by the more than Rs 1000 Cr consumer spend on Savlon alone in 9MFY21. It has also done well to keep expanding the Aashirwad range and maintain market share in strong areas like atta while expanding into pulses and breakfast meals. The Hotels business is also on its way back and was EBITDA positive and breakeven in Q3. It remains to be seen how the company will mitigate the effects of the systematic decline of the cigarette industry and how long will it take for the Hotels business to get back to pre-covid level of operations. 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.
Piramal Enterprises
PEL has seen a good bounce back in the financial division and good growth in the pharma division. The company has managed to make a successful acquisition bid for DHFL which is a shot in the arm for the nascent retail lending business. It has brought the net debt to equity for overall business to 0.9 and for Financial Services business to 1.9 times which is exceptional for a predominantly NBFC company. The company is doing well since the launch of the retail lending platform in Nov. PEL’s pharma business is also expected to see additional demand coming back in the complex generics business which has been subdued due to the postponement of most surgeries due to COVID-19. It remains to be seen how long will this slow period for financial services lasts for the company and what challenges will it face in establishing its retail lending platform and the integration of DHFL. However, given their past track record, management capability, and surplus unallocated capital which can be deployed to support any of the conglomerate’s various businesses, Piramal Enterprises continues to be a good conglomerate stock to watch out for, particularly in the real-estate lending space.
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