This is the 3rd post in our quarterly result update series for Q1FY21.
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.
CCL has already established itself in the wholesale coffee space for many years and their foray into branded sales through Continental Coffee label has been very encouraging. The company has had a modest quarter on the back of almost 100% utilization at the Vietnam facility. The company’s branded business is growing well and the management has reassured that growing the top line is the primary concern for this division. The company is doing well to capitalize on its unique offerings and is working hard on expanding its influence. This is evident from the response seen from customers for its new cold brew product. The company also has a good opportunity in the coffee capsule business whose patent has expired recently. It remains to be seen how the coffee industry will come out from COVID-19 and whether the branded business will be able to maintain its growth momentum. Nonetheless, given the enormous market opportunity for the branded business in the domestic market, CCL products may turn out to be a dark horse in the global coffee industry in the years to come.
Heidelberg Cement is one of the leading cement makers in South and Central India. The company has had a mixed quarter with steady realization and margins and a big fall in volumes for Q1. The company managed to do this mainly on the back of its established brand image in the retail market. The company has also done well to overcome the logistical issues it faced at the start of the lockdown. It is also good to see that the management remains focused on steadily increasing permanent market share on the basis of the brand image and is not chasing temporary market share from price drops. It remains to be seen how demand comes back to the industry and whether there are any disruptions in-store from COVID-19. 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.
Nippon Life Asset Management
Nippon India Life Asset Management is one of the leading asset managers in the country. The company has done well to bounce back after the rebranding last year. This was evident from the number of investor additions in Q1FY21 which exceeded the number of investors who joined in the whole of FY20. The company continues to have a good hold in the IFA space with this channel being the largest distribution channel for the company. 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 and whether it will be able to maintain its growth momentum going forward. 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. Despite fall in volumes in Q1, the company was able to keep efficiency high and keep increasing EBITDA/ton and EBITDA margins. The company is doing well to focus on cash conservation and cost reduction after the disruption caused by COVID-19 while looking to sell off its non-core assets to reduce debt. It remains to be seen how long will it take for demand to normalize for the industry and when will demand come back to the institutional side and urban areas where demand has fallen the most. Nonetheless, given the company’s leadership position in the industry, its wide distribution network across India, and its strong brand image, Ultratech Cement remains a pivotal cement sector stock for all Indian investors.
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