This is the fifth post in our quarterly update series for Q2 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.
Allcargo has cemented its place as one of the top 10 shipping and logistics companies in the world. The last quarter was modest with moderate revenue growth and a small drop in PBT. The company is looking forward to developing its logistics park division which would yield a monthly revenue of Rs 6 Cr once fully operational. It remains to be seen how long the company shall be able to outperform the industry and whether the industry will be able to pick up from current growth levels of 2-3%. Nonetheless, given their relatively good performance in an underperforming industry and their ambitious plans to enter into and develop a new parallel business line of logistics parks, Allcargo Logistics looks like a good stock for any investor banking on the theme of increased trade and logistics in India and the world.
Apcotex is one of the few synthetic rubber makers in India. They have been going through times of stagnating revenues while volumes have been growing consistently. The company has had a difficult quarter where despite volumes growth, they have suffered a decline in revenues and overall margins. This is mainly due to the lower demand for NBR (Apcotex’s higher-margin product) in global markets which has resulted in a fall in prices of this product. The management firmly believes that this situation will not last long and thus they are still on track with their proposed NBR capacity expansion despite the current headwinds in this product segment. The company also anticipates anti-dumping measures from the Government of India to help ease competitive pressure from foreign exporters in the domestic market. It remains to be seen how long these import restrictions will take to be implemented. Also, whether the demand for NBR will revive as fast as the management expects is to be seen. The reason behind this segment’s decline is the global auto industry decline which is very difficult to predict. Nonetheless, given the company’s past track record and its positioning as the only NBR maker in India, Apcotex remains a good stock to watch out for.
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 has witnessed a decline in profitability in the research division which is their biggest revenue generator. But the rating business of the company is performing well and covering up some of the slack left by the research business. The company’s advisory division is developing well and is expected to help the company exploit a new avenue for growth for the company that has seen a decline in its dominant category of research. It remains to be seen how the company will be able to grow its divisions to get back on the growth track. Nonetheless, given the company’s stellar track record and the nascent opportunity of the rating business in a country that is still new to securitization, CRISIL remains a potentially good value creator in the long run for discerning investors. Valuation also continues to be near the lower band of the last 10-year average.
Mayur Uniquoters has been one of the biggest artificial leather makers in the world. But the company has been through a rough patch in the past few years with stagnant revenues and decline of the unorganized footwear segment which was a big revenue generator for the company. Additionally, the focus segment of Auto OEMs has also been going through an industry slowdown which has further depressed the company’s revenues. It remains to be seen how long this auto slowdown shall last. Mayur has been proactive in attracting and negotiating with export customers despite the process being long and time-consuming. Nonetheless, the promise of their upcoming PUC leather segment and their export customer acquisition including Mercedes Benz and MG is what keeps this stock in our watchlist.
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