This is the 11th 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.
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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 continues to improve from the disruption from COVID-19 in the peak summer season. The demand has been steadily rising since after the lockdown. The industry is widely expected to come back to normalcy by 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 the import ban of refrigerant cooled products in RAC and the steadily rising components businesses. 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. However, the current valuation appears to be very stretched for the company.
Dixon Technologies is one of the foremost leaders in the electronics manufacturing and outsourcing industry in India. The company has done well to scale up its different diverse divisions: lights, consumer appliances, mobiles, etc. It has also acquired many marquee customers along the way including Vu & OnePlus in Q2. The current quarter was good for the company despite the production shutdown during the lockdown. Demand has come back fast in all of its segments and the company is also hopeful of expansion in mobiles on the back of the PLI scheme and LED exports. The company remains confident of reaching the ceiling numbers for the PLI scheme from its existing customers. It remains to be seen whether the company will be able to expand aggressively in the medical devices space and what obstacles it will face that may threaten to halt its growth momentum in its emerging segments. Nonetheless, given the list of marquee customers that the company has gained and retained over the years and its continuous efforts to expand existing capacities like consumer electronics and adding new product lines like disruptive medical devices, Dixon Technologies is cementing its place as a good growth-story in the outsourced manufacturing sector in India.
KNR has been one of the top performers in the construction industry. Despite the industry headwinds and the general plight of the companies in this sector due to delays in payments from NHAI, KNR has been able to continue to improve its margins substantially. The company has been able to weather the severe issues regarding land acquisition and labour crisis which it met earlier this year and has been able to achieve marginal growth despite working at only 80% operational capacity. The management was expecting labour to start coming back after monsoons but COVID-19 fears have kept this issue from getting fully resolved. The company has done well to source a new HAM project and is looking to replace the 3 HAM projects that will be over in the next 6-8 months. It remains to be seen how the industry will fare going forward and how long will it take for the Govt’s push in infrastructure to gain proper momentum. Nonetheless, given its strong balance sheet, good operational history, and resilient order book, KNR Constructions remains a pivotal construction sector stock to watch out for.
Natco Pharma is a vertically integrated and R&D focussed pharma company with a specialization in FDFs and APIs. The revenues for Q2 has been very good especially from the export market. In the last few years, they have made some progress on expanding newer geographies, however, there is still a lot of work to be done on that front. In the domestic market, they are highly dependent on the oncology market. Demand for this sector has stayed muted as the hospitalization rate for cancer patients has remained subdued. The management expects the demand to come back slowly. The company is doing well from Tamiflu supply to Brazil and Canada through govt tenders and is also expecting big things from the emerging Agrochem segment. In the long run, meaningful expansion in newer geographies around the world and adding new segments in the domestic market is going to be the points to track about the company. Despite the challenges, Natco pharma appears to be a good stock to watch out for due to the management’s focus on R&D and execution of long term plans for the company.
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