This is the 9th 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.
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 strengthening its brand in the market. The bank has done well to keep engaging its customers in such trying times and to maintain enough provisioning and liquidity for uncertain situations. This has led to an exemplary operational display of growth in SA deposits of 14% in Q1 despite all the disruptions from COVID-19. It remains to be seen how the whole COVID-19 situation pans out and how will the moratorium ending pan out for the bank and the industry in general. Nonetheless, given the company’s good performance record, its robust customer engagement, and its prudent management of its AUM, AU Small Finance Bank remains a good small finance stock to watch out for.
Galaxy Surfactants is one of the most consistent specialty chemical makers in India. The company has done well to achieve sales volume growth despite disruptions from the domestic lockdown and has even managed to maintain EBITDA/ton despite the product mix shifting towards performance surfactants. The company suffered a revenue decline despite volume growth mainly due to a fall in fatty alcohol prices which forms around 52% of its requirements. The company has seen good growth coming from the AMET region particularly Egypt and demand in all geographies is seen to be reviving. The company is expecting good demand for its products going forward due to the renewed focus on health & hygiene and revival in demand for specialty chemicals going forward. The company has enough spare capacity to handle any upsurge in demand. It remains to be seen how the whole situation will pan out going forward and what final impact it will have on the global economy and whether the focus on health and hygiene is going to stay or not post COVID. Nonetheless, given the company’s robust product portfolio and the ever-increasing list of both FMCG majors and niche specialty product makers, Galaxy Surfactants remains a good stock to watch out for in the specialty chemicals space.
Manappuram Finance has long been one of the most consistent players in the NBFC sector in India. The company has cemented its position as one of India’s gold loan providers in India by growing its core business consistently. The company’s current quarter performance has been decent with >20% YoY overall AUM growth despite QoQ decline in Asirvad AUM. The company has also seen good traction in the online gold loan which growing even faster in current times of COVID-19 disruption and is now accounting for 63% of all loans. This brings a significant opportunity for the company to improve its operating model and reduce manpower and physical costs. The company has stayed cautious with Asirvad and has not disbursed any amount in Q1. It remains to be seen how the company’s collections will be affected once the moratorium ends and collection for disbursals in FY21 starts and how will things pan out for Asirvad and the MFI industry. Nonetheless, given the company’s resilient customer base and gold loan AUM along with the rising star among MFIs in India Asirvad Microfinance, Manappuram Finance seems like a pivotal finance stock to watch out for.
Sudarshan Chemical is one of the largest pigment makers in the world. The company has done well to improve its gross margins steadily throughout FY20 and continue to do in Q1. The company did suffer a bit from the plant shutdown in Q1 from Cyclone Nisarga which led to a dip in EBIT margins. But the demand for the company products remains stable and the management expects to make up for this revenue loss in Q2 due to the steady demand. The company has a good opportunity for growth from the China substitution movement. It is also doing well to reduce dependence on China for raw materials and looking for opportunities for backward integration which would further its priority of establishing cost leadership. It remains to be seen how the domestic market will recover for the company and how long will it take for the company to reach its goal of cracking the global top 3 in the pigment industry. Nonetheless, given the company a strong position in both domestic and export markets and its steadily improving margins due to improving product portfolio, Sudarshan Chemicals is a pivotal chemical sector stock to watch out for.
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