This is the 9th post in our quarterly result update series for Q2FY21.
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.
BKT has been a rising player in the off-road tires business for years now. The company witnessed a tepid Q1 mainly due to the disruption in sales from COVID-19. It has however been able to increase EBITDA margins and volumes YoY in Q2. The company is also expecting sales volumes to grow marginally in FY21 over FY20 which is a testament to the company’s revival post-COVID-19. The company is also looking to shift its product mix more towards larger sizes which are expected to result in marginally lower capacity which the management assures will be enough for growth prospects for the next 2-3 years. 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 and a swift comeback in both segments. 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 response to the MiY platform which has transformed the company’s online presence and conversion. The launch of the Meteor model was also very timely and is expected to expand the company’s portfolio and capture the huge 100-150cc market. 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.
Mayur Uniquoters has been one of the biggest artificial leather makers in the world. But the company has been through a rough patch in the past few years with stagnant revenues and decline of the unorganized footwear segment which was a big revenue generator for the company. The company is making good inroads into the auto-export segment. Q2 performance for Mayur was good with good recovery in the auto segment while footwear remained subdued. The management remains confident of the product’s technical and quality edge but has stated that it may take the rest of FY21 for the company and its customer segments to come back to normalcy. The company’s export orders from Mercedes and Volkswagen should help the company maintain good growth in the medium. The new import duty on PU should also help the company increase its PU sales which have stayed stagnant to date. It remains to be seen how long the current slow auto environment continues and how long will it take for the management vision to materialize. Nonetheless, given its dominant market position both in the domestic and export segments and the management’s focus on not compromising on quality no matter what, Mayur Uniquoters remains a good small-cap stock to watch out for.
Minda Industries has been one of the top auto ancillaries providers in the country. They have steadily expanded their product offerings such that their kit value is increasing year on year with the addition of newer products in the mix. The company has had a good quarter with swift demand revival and good reception for its new segments of alloy wheels and lighting orders. The company has also managed to gain good orders for its Lighting business from Audi & Daimler through its acquisition of DELVIS. It has also gained good orders for Lighting from Royal Enfield, Honda, Bajaj Chetak, etc. It remains to be seen whether recovery will be as fast as the management expects. The management has a goal of doubling revenues in 4-5 years. It is still early days to comment on that. Nonetheless, given the new orders that the company has bagged, their improving product portfolio, and massive import substitution opportunity, Minda remains a compelling auto ancillary stock to watch out for.
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