This is the 7th 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.
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Please click on the read more button for more details on each stock.
Amber Enterprises has cemented its position as a prime AC and white good components manufacturer in India. The performance of the quarter was marred by the disruption from COVID-19. The demand has been steadily rising since after the lockdown. The industry is widely expected to come back to normalcy by Q3/Q4. Despite the loss of sales and reduced activity in 3 of the peak months for the company, the management is optimistic about the company’s prospects due to the increased opportunity from import substitution of Chinese products in RAC and components businesses as well as the upcoming PLI scheme for the RAC industry. It remains to be seen whether there are any more large scale manufacturing disruptions to come from COVID-19 and whether the company will be able to maintain its optimistic expectations in the exports and components space. Nonetheless, given the massive opportunity size from import substitution, the growth prospects of the industry, and the company’s dominant position in the ODM market, Amber Enterprises remains a pivotal stock in the fast-rising air conditioning industry.
BKT has been a rising player in the off-road tires business for years now. The company has seen a tepid Q1 mainly due to the disruption in sales from COVID-19. It has however been able to increase EBITDA margins YoY. The addition of the carbon black plant is expected to bring about additional margin appreciation for the company bringing the guidance for FY21 at 28-31%. Although the company was hit by supply chain disruptions due to the lockdown it didn’t hamper its sales in the EU & USA since the channel inventory here is at 2-3 months. It remains to be seen whether there are any other economic shocks to come from COVID-19 and whether the company’s projections of rising demand from Agri and non-Agri sectors pans out as expected. Nonetheless, given the company’s sustained margin performance, its resilient market share in a slow global market, and the rapid rise of the company in India, Balkrishna Industries is a good tire stock to watch out for.
Eicher Motors has been one of the highest-rated auto companies in India. This was mainly on the back of their successful turnaround of Royal Enfield and the emergence of the mid-sized (250cc-750cc) motorcycle market. The company saw impressive industry outperformance in both the RE and VECV businesses despite the massive auto sector slowdown which was exacerbated by COVID-19. This is evident from the fact that despite revenue and volumes declines, both of these divisions have gained market share in their respective industry segments and declined less than their respective segments. The company has seen a good recovery in demand which is evident from the number of inquiries & bookings coming back to pre-COVID levels. The company still faces the major challenges plaguing the industry like how long will demand take to normalize for the auto industry and whether there any more disruptions in store in the future from COVID-19. It remains to be seen whether the company will be able to keep outperforming the industry and how its various initiatives like studio stores and Make Your Own platforms pan out in the future. Nonetheless, given its resilient performance in its various segments and the strong brand and industry position of the company, Eicher Motors remains a critical stock to watch out for every auto sector investor.
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 despite the setback in the catering industry from COVID-19. The only major loss to the company in Q1 was from the loss of domestic orders from the catering industry while the consumer packs segment has risen dramatically to fill this void. The company is doing well to reduce its dependence on working capital loans and to develop into regional rice and other avenues like health foods in the export segment. 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
face any obstacles in its way ahead to demerge its power business. 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.
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