This is the 2nd 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.
You can see the earlier updates here.
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Please click on the read more button for more details on each stock.
CRISIL has been a trusted financial service and information provider for a long time. They have established themselves as a reputed name in their operational fields of ratings, research, and advisory. The company saw a good response to the rating business while the research business grew steadily with the addition of Greenwich Associates to the company’s umbrella. Although the profits for the company are subdued due to the addition of Greenwich without which PAT growth would have been 18% YoY, this drop in profits looks to be temporary only. The advisory business suffered a lot due to reduced spending by clients on projects. It remains to be seen how long the pandemic lasts and what second-order effects the COVID-19 situation will have on the company’s performance going forward. Nonetheless, given the company’s industry position and its financial resilience, CRISIL remains a pivotal stock in the rating sphere. The valuation multiple of the company continues to be near the lowest level in the last ten years which makes it an attractive potential investment for the long term.
HDFC AMC is the leading mutual fund house in India. It is the market leader in actively managed equity funds space and a trusted mutual fund provider for individual investors which is evident in their high individual account numbers and AUM. The company had a muted quarter due to a fall in Equity AUM and a falling share of credit risk funds in the debt category. The company has done well to focus on cost savings and facilitating online registrations and transactions to cover for difficulties in physical transactions due to COVID-19. It is also good to see that the company is looking to launch new products in the near future which will help address current gaps in the addressable market and expand into the thematic equity investment space. It remains to be seen how the COVID-19 situation will unravel and how it will continue to affect the investment sentiments in India. However, given the company’s strong past track record and its leadership position in the industry, the medium and long term outlook for HDFC AMC remains intact.
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, and the launch of the GTAM market, 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 and how will the supreme verdict on the derivatives on power will go. However, the company seems to have the financial muscle to tide over the disruption of COVID and also launch new segments as it goes along. It is still very early days in the power exchange market. However, as of date, IEX looks like a pivotal player in this industry.
Sterlite Technologies saw a big revenue and profit decline in the current quarter. The company has had a down quarter as the business recovers from COVID-19. They are seeing a good recovery in the product business with utilization levels rising above pre-covid levels. The company is seeing a decent deal wins abroad mainly on the data center business and is also expecting to see sales for virtualized access products start from next year onwards. There is a massive opportunity in the cards for the company from the development of the 5G ecosystem announced by Reliance Jio based on Open RAN technology which is also supported by Airtel. It remains to be seen how the uncertainty around COVID-19 unravels and how fast will move towards 5G take place in the company’s principal geographies. Nonetheless, given the company’s capabilities in providing integrated and tailored network solutions, its expanded production capacity, and long-running order, Sterlite Technologies looks like a pivotal stock to watch out for in the communications technology space.
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