This is the ninth post in our quarterly update series for Q4 FY20.
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.
CCL has already established itself in the wholesale coffee space for many years and their foray into branded sales through Continental Coffee label has been very encouraging. The company has had a decent quarter on the back of the improved product mix and improvement in margins and PAT. The company’s branded business is growing well and has already captured a 5% market share in South India according to internal estimates. The company is doing well to capitalize on its unique offerings and is working hard on expanding its influence. The company has had minimal impact from COVID in its Vietnam facility and has not been hit as hard from COVID-19 as other industries. It remains to be seen how the export business will pan out in the year given the logistical disruptions from COVID-19 and whether the branded business will be able to maintain its growth momentum. Nonetheless, given the enormous market opportunity for the branded business in the domestic market, CCL products may turn out to be a dark horse in the global coffee industry in the years to come.
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. The company has done well to keep up the growth momentum in its existing segment by acquiring new customers. It is also investing in automation of its labour-intensive lines which is a good sign of passive productivity increase over the long term. The company has also forayed into medical devices by signing an MoU with MoIbio for manufacturing of RT-PCR test device which can deliver COVID-19 test results in just 55 minutes. This represents a big opportunity for the company as testing for COVID019 is expected to ramp up fast in the near future. Additionally, this device can test for 27 other infectious diseases which ensure that demand for the product remains steady in post COVID times. It remains to be seen whether the labour issue the company is facing in a specific segment will be resolved as the management has envisaged and what obstacles it will face that may threaten to halt its growth momentum. 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.
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 general auto sector slowdown. 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 also done well to maintain robust export growth in the year with 96% YoY rise in export volumes. The company still faces the major challenges plaguing the industry like the likely disruption from BSVI transition and general economic uncertainty 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.
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 delay in payments from NHAI, KNR has been able to continue to improve its margins substantially. But the company does face severe issues regarding land acquisition and labour crisis which is expected to hit the construction industry hard. The management expects labour to start coming back after monsoons but it remains to be seen how long it will take for the company to get back to normal operating levels. The awarding of projects and tenders has also gotten delayed which has put many industry players under stress. 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.
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