This is the 6th post in our quarterly result update series for Q3FY21.
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.
Blue Star Ltd
Blue Star has seen a decent recovery in revenues and profits for Q3FY21. It saw a good recovery in the RAC business which also saw the company’s market share rise to 13%. The company has done well to rationalize inventory and order ahead for raw materials which helped it stave off the threat from the container shortage. There are a few big opportunities for Blue Star on the horizon like the RAC PLI scheme and the demand for the cold chain for vaccination drives. It has also seen good growth in the water purifier segment where it expects to achieve breakeven by the end of FY21. It remains to be seen whether the estimations of industry revival remain on track as mentioned by the management and whether disruptions from container shortage and the rise in raw material prices go away soon. Nonetheless, given the company’s strong market presence, its history of completing EMP projects, and its robust presence in semi-urban and rural India, Blue Star is a pivotal white goods stock to watch out for.
Tata Consumer Products
TCPL has seen good growth in both value and volume terms across all segments, especially in the tea and salt businesses. The company has a good opportunity for growth in the health and wellness segment with the recent acquisition of Soulfull. This increases TCPL’s health portfolio to a massive addressable market of Rs 20,000 Cr which is expected to double in 5-6 years. It was also able to pass on the increase in tea and salt prices directly to consumers and also gain market YoY. It remains to be seen how the company’s wholesale businesses which was the worst hit from COVID-19 fare going forward and how the company will fare against other branded players like ITC in the fast-rising branded staples category. Nonetheless, given the company’s leadership position in its top brand segments, its enhanced distribution-reach after the merger, and the incoming synergies and benefits from integration, Tata Consumer Products remains a good FMCG stock to watch out for.
Thomas Cook India Limited
The management is doing well to use this period of slow operations to focus internally and improve the cost structure which has resulted in them already achieving their cost savings target for FY21 in 9M period. Thomas Cook has taken encouraging actions for DEI like winning various commitments for large tourist attractions in the Middle East like Dubai Safari Park which should help expand this business line once normal tourist activity resumes. It is also continuing to bring back its other businesses to normal levels and has been constantly innovating and adding new services like automated travel booking for corporate clients. It remains to be seen how long it will take for things to normalize for the travel industry and how consumer behaviour will evolve from COVID-19. Nonetheless, given the company’s resilient balance sheet and the management’s focus on improving the internals of the company and focusing on new avenues for the industry, Thomas Cook seems to be a resilient travel industry stock in an industry plagued with shutdowns and bankruptcies these days.
VIP saw good sequential recovery in Q3 and is expecting to get back to its quarterly run rate of Rs 400 Cr by Q1FY22. As per the management, the competitive scenario at the moment remains very intense as all industry players are sitting on a lot of stock and gross margins may take at least 1-1.5 years to come back to pre-covid levels. It remains to be seen how fast demand comes back to the sector and how will the company fare in the meantime. Given the slowdown in travel and travel activities at the moment, demand-revival seems a distance away. Nonetheless, given the company’s strong brand image and leadership position in the industry along with the resilient balance sheet of the company, VIP industries remains a pivotal mid-cap stock to watch out for.
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