This is the second 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.
AU Small Finance Bank
AU Small Finance Bank has been a fast-rising player in the banking and microfinance sector in the country. The company has differentiated itself from other microfinance players by structuring themselves early as a commercial bank accepting savings and term deposits. The company made good progress in the quarter in almost all operational metrics and has been performing well in the tough economic conditions and establishing its brand in the market. The company has done well to expand steadily on almost all of its loan segments particularly SME loans. It remains to be seen whether the company will be able to stay on course to become a universal bank in the next few years and achieve the ambitious growth targets proposed by the management smoothly. Nonetheless, given its commanding presence in Rajasthan and its steady expansion of all business segments into big states of Gujarat and Maharashtra, AU Small Finance Bank remains a compelling SFB stock for all investors.
Credit AccessGrameen Ltd
Credit Access Grameen has emerged as one of the most reliable microlenders in the country. Their revolutionary JLG model has helped bring communities of borrowers together and helped reduce overall risk from their lending to a very large extent as seen in their low NPA numbers. The company has delivered another good quarter performance with more than 45% loan book growth. The company has also been expanding rapidly in the past few quarters and the management has guided that in FY21, the company will mainly be focussing on leveraging these new branches and bringing to profitability. The company has handled the situation in Karnataka admirably and its conscious decision to reduce geographical concentration risk has worked well to prevent big loss of business in such cases. The company has also announced the pending acquisition of Madura Microfinance which should help the company gain a ready and set customer base with good data and history of repayment. It remains to be seen whether the company will be able to maintain its current growth pace of >30% next year when it has decided to cool off aggressive expansion and focus on integrating new territories. Nonetheless, given its strong market position and exemplary operating and risk management practices, Credit Access Grameen remains one of the must-watch stocks in the Microfinance sector for any interested investor.
Nippon Life India Asset Management
Nippon India Life Asset Management is one of the leading asset managers in the country. The company has gone through a painful rebranding process in the last 12 months which saw the AUM for the company especially from institutional investors and HNIs decline. The company has finished its rebranding process in October and has also seen its AUM rising in the last quarter. The company has a very good reach and market positioning in the retail market which is evident from the company’s retail assets and its reach in the IFA community. The company also holds a commanding presence in the retail ETF space and has been expanding into the AIF space. This helps the company diversify and grow into alternate revenue streams that are not dependent on the domestic market. The company stands to gain a lot from its association with its promoter Nippon Life which should help the company attract foreign inflows much better than other domestic rivals. It remains to be seen whether the company will be able to match the pace of growth of its prime competitor HDFC AMC in this space. Nonetheless, given the company’s market positioning and its competitive advantage in the ETF and AIF space, Nippon Life India Asset Management is a must-watch stock for every investor interested in the AMC space.
UltraTech Cement is the biggest cement maker in India. The company has done well to acquire aging cement makers in India and integrating them and adding on to the company’s ever-growing market presence and reach in the country. It has also done well to also maintain good product quality and brand positioning which has helped the company maintain its strong market position. Moreover, with various cost savings initiatives in place like reducing fossil fuel consumption, logistics costs reduction, the company has been able to drastically improve its margins and profit-generating capability despite the slow industry conditions and declining industry volumes. Q3 was especially good for the company and further emphasized the effectiveness of the company’s cost savings by delivering exemplary profit growth of >90% YoY despite revenue growth of only 7% YoY and an overall volume decline of nearly 4% YoY. It remains to be seen how long it will take for the industry demand to rise particularly when will construction industry revives and spur the demand for cement. Nonetheless, given the company’s strong market positioning, its improving product portfolio, and its various cost optimization initiatives, Ultratech Cement remains a prime cement stock for any and every investor.
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