This is the third post in our quarterly update series for Q4 FY19.
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 future. The purpose of this post is to bring clarity in 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.
Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates both in India and abroad. Their drive to maintain their big market shares and constantly expand into emerging markets and expand product offerings should help them stay on their growth trajectory for years to come. However, the industry numbers are showing signs of weakness in the near term. Hence, it would be critical to note how Bajaj Auto deals with the same. Compared to its peers, Bajaj Auto has navigated the industry slowdown pretty well till date and have also has managed to increase its market shares in the motorcycle segment. Trading at 19 times earnings, a debt-free balance sheet, a global distribution reach and a leader & strategist like Rajiv Bajaj steering the business’s ship, Bajaj Auto remains an interesting investment opportunity.
Jyothy Laboratories Ltd
Jyothy Lab has come out with a decent set of numbers in Q4FY19. They have successfully carved out a niche for themselves and have established themselves as a formidable player in the fast-growing dishwashing segment. As this industry segment shifts from unorganized to organized, there is a lot of room of opportunity in this market. In other areas, the company has shown their product quality with successful pilots in Kerala which they expect to replicate in other states. Whether they will be as successful in other states as they have been in Kerala is a point to watch. Nonetheless, Jyothy Labs is a good bet on the FMCG sector especially given its relative undervaluation compared to other FMCG majors.
Mahindra Holidays Resorts India Ltd
Mahindra Holidays is an interesting business. They look like a traditional hotel and hospitality company but there is a difference in how they operate. Being a vacation ownership company, they sell future vacations to their customers in the present day and use that funds for the development of resorts and create exciting resort experiences for their customers. Hence, like any other hotel company, they do not have to take up debt on their books for growth. Moreover, while hotels provide food and lodging facilities, a vacation ownership company provides a complete vacation experience. Families can spend quality time together in the resorts and refresh themselves with exotic in-resort offerings of MHRIL. But their business model is very much dependent upon the growth of new member additions. Company has to be on toes to keep on getting new members on board to maintain its business. Growth in membership is the source of funds which is used to further grow the resort count and room inventory. Stock price has corrected to a great deal once the new accounting treatment started hitting the financial accounts. Club Mahindra is the world’s leading vacation ownership company outside of USA. Given the cash on books, geographical spread of resorts and a decently growing membership base, MHRIL is worth a serious look.
Varun Beverages has been one of the biggest bottlers in India and has been proactive in international expansion for some time now. They have successfully acquired exclusive rights for Pepsi bottling and distribution in West and South India which should add to their already large volumes. The company has also proved themselves by maintaining good margins for a bottler and have capitalized well on their inorganic acquisitions and expansions. The critical factor to evaluate is how VBL meets its capex and working capital requirement. It is a highly capital intensive business. While it generates a decent cash from operations, all of that is utilized for meeting their capex requirements. They have sizeable debt on the books. Debt equity ratio is 1.6 and interest coverage ratio of just a shade under 3 warrant a close monitoring on the cash generation ability of the company. Moreover, while they are selling brands of Pepsi, they do not possess any pricing power.
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