This is the fourth post in our quarterly update series for Q3 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.
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 also done well to establish itself as one of the leading commercial cooling and electromechanical project solutions providers in India. Furthermore, the company has also expanded into the still underpenetrated water purifier segment where the vast majority of the addressable market remains untapped. The current quarter results were decent considering that it is an off-season for a cooling solutions provider like Blue Star. Although the margins for the quarter were low due to higher advertising expenses from signing Virat Kohli as the brand ambassador, the management seems to think that this is a temporary blip and margins should normalize going forward. It remains to be seen how long the current slowdown in the real estate and infra sectors will continue as this has restricted growth in the commercial cooling solutions business. The heightened ad expenses from investing in Virat Kohli a brand ambassador are also yet to be justified as it will take some time for these ad efforts to solidify the brand image. Nonetheless, given its robust market positioning and the big potential for all forms of cooling solutions and products in a tropical country like India, Blue Star is a good cooling solution stock to watch out for.
Equitas Holdings has been one of the important players in the MFI industry in India. The company has successfully formed its own SFB which is expected to get listed in the near future. The company has done well to maintain its revenue and loan book growth. The company’s SMB loan division, in particular, has been performing well while keeping NPAs at manageable levels. The company is focussing more on growth in lending operations rather than aggressive expansion into new territories. Dependence on Tamil Nadu remains a big risk for the company as any adverse event in the region may drastically affect the company’s performance. It remains to be seen how the company will be able to differentiate itself from other rising players in the SMB industry. Nonetheless, given the company’s history of consistent performance and the highly anticipated IPO of its SMB, Equitas Holdings remains a good stock to watch out for in the Microfinance and Small Finance Banking market.
Quess Corp Ltd
Quess Corp is a company that is growing its revenue and profit rapidly. In the last 5 years, the revenue has grown at a CAGR of 53% and profits have grown at a CAGR of 72%. However, they had ventured into a few un-related fields in the recent past which concerned investors. The most talked-about being the investment in a football club (FC), East Bengal. The company has realized its mistake and is now looking to offload its stake in East Bengal FC. It has fixed the date of 31st May for its contract termination with the club. Overall, the growth momentum continues to be strong. After being on an acquisition spree for the last few years, the management now guides for consolidation and focus on margin improvement. Post the demerger from Thomas Cook India Ltd, Quess Corp has again attracted interest from the investors’ community. However, it is to be seen how the company performs in the next few quarters. Quess Corp continues to be one of the stock to watch out for in the staffing space in India.
Tata Motors continues to be on the slow path to recovery. The performance in JLR has been encouraging with revenues rising almost 3% YoY. The company saw impressive cost savings under Project Charge which spurred the company to target additional cost savings under the new Project Charge+. The performance of JLR in China continues to improve and the launch of the new models of Discovery Sport and Jaguar XF should help further. The brand relaunch of the Defender should help the company even more on sales in other markets like the USA and UK where sales have started to stagnate. But the threat of coronavirus and its impact on the company’s China sales in the quarter cannot be underestimated. It remains to be seen how this coronavirus situation pans out in the near future and how TML will recover in the domestic market where it saw a dismal performance despite gaining market share in certain segments. Nonetheless, given the company’s market position in both India and the major auto markets of USA, EU and China, Tata Motors remains an important stock to watch out for all investors interested in the auto sector.
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