This is the seventh 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.
Amber Enterprises has cemented its position as a prime AC and white good components manufacturer in India. They have achieved phenomenal growth in the financial year 2020. The performance of the quarter was marred by the disruption from COVID-19 which has also caused a fall in sales for the company in April as well. The industry has not been affected much by this disruption since dealers have had enough inventory to tide the disruption. The company expects demand to slowly normalize over FY21. 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 import substitution of Chinese products in RAC and components businesses. It remains to be seen whether there are any more large scale manufacturing disruptions to come from COVID-19 and how the company will adapt to it. 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.
Blue Star Ltd
Blue Star is one of the largest cooling solutions providers in the country. It is one of the biggest branded players in the RAC market. The company has seen flat revenues and declined profits for FY20. The major reason for this performance was the disruption in sales across all divisions from COVID-19 especially in the unitary business where March lies in peak season. The company had done well to stock enough inventory to be able to stay on despite lack of manufacturing activity during the lockdown period. It remains to be seen whether the estimations of good festival season sales come true and whether there are further disruptions in store from the evolving COVID-19 situation. It will be interesting to see how the company will achieve its ambitious target of expansion and capture of market share in the nascent water purifier segment. Nonetheless, given the company’s strong market presence, its history of successfully 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.
Heidelberg Cement India Ltd
Heidelberg Cement is one of the leading cement makers in South and Central India. The company has had a good year so far with good improvement in realization and margins even while it saw a slight fall in volumes for FY20. The company managed to do this mainly on the back of its established brand image in the retail market. Even though the industry has been deemed essential by the government, the cement industry is expected to continue to face issues like liquidity crunch, increase in the procurement cycle, labour shortage and the company is no exception to it. It remains to be seen how the company will be able to rise above the issues plaguing the industry and differentiate itself from the rest of the pack. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the pricing power it has, Heidelberg Cement India can prove to be a pivotal cement sector stock going forward.
VIP has been the market leader in the soft and hard luggage segment in India for a long time now. The company is one of the biggest luggage manufacturers in the world by volume. The company and the industry have been facing tough times with sales contraction due to a fall in demand and disruption from COVID-19. The company is doing well to switch to Bangladesh for soft luggage procurement and to reduce costs while acknowledging that the sales environment going forward will be tough in the short term. It remains to be seen how fast demand comes back to the sector and how will the fast-rising segment of backpacks will fare in the coming months. 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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