This is the 4th 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.
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Please click on the read more button for more details on each stock.
Apcotex is one of the very few synthetic rubber makers in India. The company has seen a dismal quarter in Q1 with EBITDA loss and volume decline. Exports were encouraging but the company did lose a few orders due to the lockdown. The company is now focussing on capitalizing on the strong demand for gloves and is concentrating on establishing a direct facility for making latex for gloves in its Valia plant. The antidumping petition by the company is still not accepted and this has caused the management to pause on its plans to expand NBR production lines. It remains to be seen how the demand for the company’s products changes going forward and how the company will be navigating the issues brought up from the continued dumping by international makers. Nonetheless, given the company’s industry position, the prudent management of the company, and the company’s optimism as deduced from its increased Capex plans, Apcotex seems to be a good chemical stock to watch out for.
Hester Bio has had a tough time this year with the recession in the poultry industry and delays in the animal vaccine tenders. The growth of Nepal has stalled due to the lockdown and the absence of FAO tenders. On the other hand, Tanzania has seen good profits due to the rise in prices in the continent. The management has done well to clearly identify the growth path ahead with the focus to expand into the health products division which is still very small for the company. It remains to be seen how long the slowdown in the domestic poultry market continues and whether the industry will bounce back as soon as the company expects. Nonetheless, given their excellent technical expertise and the future potential of its international operations and its upcoming foray into animal health products, Hester Biosciences remains a good small-cap stock to watch out for.
Indian Energy Exchange
IEX is the first and largest energy exchange in India providing a nationwide, automated trading platform for physical delivery of electricity, Renewable Energy Certificates, and Energy Saving Certificates. It has a very asset-light business model and a strong Balance Sheet. In the last several years it has done well by constantly adding new products and improving offerings for the participants on its platform. With the share of renewable energy rising in total energy consumption, the future of IEX looks very exciting. However, it seems that competition in this sector is also increasing at a rapid pace. It remains to be seen how the whole COVID episode plays out to understand its impact on IEX. However, the company seems to have the financial muscle to tide over the disruption of COVID. It is still very early days in the power exchange market. However, as on the date, IEX looks like a pivotal player in this industry.
Marico is one of India’s leading FMCG companies with many market-leading brands like Saffola and Parachute. The company has done well to maintain value growth on a MoM basis in almost all categories despite fall in overall volumes everywhere. It is showing encouraging performance in the food category. The company has seen a decline in overall volumes but has maintained its leadership position in all categories highlighting good brand resilience. In light of the COVID-19 disruption, the company has done well to develop direct distribution channels and rationalize its SKUs The company’s focus on expanding into on high margin food categories and the in-demand hygiene looks shows good room for growth in these segments. It remains to be seen how long the COVID-19 situation lasts and what second-order effects it has on the company and general consumer behaviour. Nonetheless, given the company’s solid standing in its core categories, its expansion plans for high margin food categories, and its robust distribution network, Marico looks like a pivotal FMCG stock to watch out for.
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