This is the sixth 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.
Apcotex is one of the very few synthetic rubber makers in India. The company has seen a good comeback in Q4 after suffering from its worst-ever quarter in years in Q3. Exports were particularly encouraging for the company before the COVID disruption brought everything to a halt. The company is now focussing on capitalizing on the strong demand for gloves and is concentrating on establishing a direct facility for making latex for gloves in its Valia plant. The company has done well to concentrate on volumes and preserving its EBITDA per ton while commodity price falls are pushing down prices for its products. It remains to be seen how the demand for the company’s products changes going forward and how the company will be navigating the issues brought up for the COVID-19 disruption. Nonetheless, given the company’s industry position, the prudent management of the company, and the company’s optimism going forward as deduced from its increased Capex plans, Apcotex seems to be a good chemical stock to watch out for.
Bajaj Finance is one of the fastest-growing NBFCs in India today. The company has done well to maintain its status as a growth company and has had a stellar year in FY20. But the economic shock and disruption from COVID-19 have forced the company to alter its path and focus on the balance sheet resilience and managing Opex while the economic environment remains tough. The company has indeed been agile and decisive to take quick decisions as to which businesses to open and which to keep on hold in the current environment. It remains to be seen what second-order effects will the COVID-19 disruption have on the NBFC space and how Bajaj Finance navigates through the trying times ahead. Nonetheless, given the company’s strong market position, the management drive to derive new opportunities through the use of data and technology, and its strong balance sheet position, Bajaj Finance remains a pivotal NBFC stock for all Indian investors.
BSE is the largest stock exchange in the world in terms of listed entities. The company has been in this industry sector for close to 150 years and is still at the forefront of the industry in terms of technology and access to tradable products. While the company is losing market share in its traditional exchange business to NSE, BSE Star MF business is growing very rapidly. In FY19 it formed just 8% of the revenue. In FY20 the revenue contribution has jumped to 20%. With the long runway of growth in BSE Star MF and international exchange business along with a Star MF style platform for insurance also adds future engines of growth. The market capitalization of the company is less than the tangible assets it possesses. So the stock looks really undervalued at current levels. It would be interesting to see what events can trigger the rerating of the stock. BSE remains an interesting stock to watch out for.
Ujjivan Small Finance Bank
Ujjivan Small Finance Bank has been one of the top players in the SFB industry. It is the biggest and most diversified company in this sector in terms of geographical reach. The company has done well to deliver a good performance in Q4 after its bumper listing. But despite all the good performance, the bank is staring at an impending dip in performance due to the disruption caused by COVID-19 in the upcoming quarter. The bank is doing well in keeping track of its customer base and keeping in touch with them and collecting relevant survey data to identify how the customer is being affected by COVID-19. It is a good sign that the bank is now looking to focus on transforming its operations to a more contactless mechanism using digital techniques and concentrating on repeat business from customers with a good operational and repayment history. It remains to be seen what is the exact extent that the MFI sector has been damaged by COVID-19 and what issues will this industry face going forward. Nonetheless, given the bank’s industry position, its wide geographical reach, and its rising digital transactions, Ujjivan Small Finance Bank is a pivotal Small Finance Bank stock to watch for, particularly given its current valuation of under 2 times book value.
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