This is the 6th 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.
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BKT witnessed a phenomenal Q4 with its highest ever quarterly sales volumes ever sold. It has also hiked its volume guidance for FY22 due to a continuous rise in sales. BKT is seeing continuous growth in North America and India markets. It is also looking to keep growing with a steady EBITDA margin of 28-30%. The company is expecting the capex projects to run on schedule. The company is also expecting to see a rise in the OTR segment and both OTR & Agri segments to become equal contributors to sales in a few years. Although RM price inflation is expected in the near term, BKT is looking to pass on any price increases to customers as it has done so since Jan 2021. It remains to be seen how the India market shapes up for BKT in Q1 due to the 2nd wave of COVID-19 and how the company’s plans for the new capex pans out. 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.
Indian Energy Exchange
IEX continues its growth march with another good quarter with volume growth of 62% YoY and sales & profit growth of 25% & 33% YoY. It has also divested 47% of IGX till date and brought on NSE as a marquee investor in Q4. IEX continues to see increased participation from discoms in the exchange given the flexibility and competitive pricing as compared to bilateral contracts. It also expects the GTAM to gather additional momentum due to the additional capacity expected to be generated by wind generators in the summer season. It remains to be seen how the policies and regulations will evolve in the power sector and how IEX will fare with the addition of a new rival exchange in this space. It is still very early days in the power exchange market. However, as of date, IEX looks like a pivotal player in this industry.
Intellect Design Arena
Intellect has had an excellent quarter with marquee deal wins with SocGen and Lloyd’s Bank. FY21 was exceptionally good for Intellect with it scoring 32 deals in the year so far with 15 of them being big destiny deals. The company is now targeting to grow organically at a CAGR of near 14% and reach $400 million sales in the next 5 years. It is also looking to use its marquee deal wins to source new leads and establish itself as a serious competitor in all BFSI technology spaces worldwide. It remains to be seen whether the company will be able to maintain its growth momentum as the management has proposed or whether there will be any other headwinds that will put pressure on the company. Nonetheless, given the acceptance of the company’s products in all kinds of financial institutions worldwide and its high customer retention rate and accelerated implementation time for its projects, Intellect Design Arena remains a stock to watch out for in the financial software industry.
PEL has seen the continuation of recovery in the financial division and good growth in the pharma division. The company DHFL bid has already gotten CCI & RBI approval & is expected to get NCLT approval soon. It has also brought the net debt to equity for overall business to 0.9 and for Financial Services business to 1.8 times which is exceptional for a predominantly NBFC company. The management maintains that the company has enough capital for organic growth of 20-25% per year for both financial services & pharma divisions. The pharma business has good runway in all 3 segments, especially in the CDMO division with the addition of capacities here throughout the year. It 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 this slow period for financial services will last for the company and what challenges will it face in establishing its retail lending platform and the integration of DHFL from the ongoing 2nd wave of COVID-19. 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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