This is the 3rd post in our quarterly result update series for Q2FY21.
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.
Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. The company has seen a good recovery in Q2, especially in the domestic motorcycles segment. The company has received a very good response to Pulsar 125 which has managed to capture 16% market share despite being the most expensive bike in the category, all in a few months of launch. The recovery of the 3 wheeler segment on the other hand has been very slow. It remains to be seen whether the recent rise in demand is sustainable and can be maintained beyond the festive season and how will the RM costs fare out in the near future. Nonetheless, given the company’s position in export markets and its strong presence in all market segments in the two-wheeler market and three-wheeler markets, Bajaj Auto remains a pivotal auto sector stock to watch out for.
Heidelberg Cement India
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 but volumes taking a hit in Q2. The company has done well to maintain its EBITDA/ton at high levels despite costs for fuel rising. 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. The builder community is going through a severe cash crunch right now which is also affecting cement consumption. It remains to be seen how long it takes for demand to come 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.
Sudarshan Chemicals 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 so in H1 so far. The company did suffer a bit from the plant shutdown at the start of Q2 from COVID infections. But the demand for the company products remains stable and the management expects to remain consistent due to the pent-up demand pressure. The company has a good opportunity for growth from the China substitution movement and the exit of 2 major players in the global pigments industry. 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 an improving product portfolio, Sudarshan Chemicals is a pivotal chemical sector stock to watch out for.
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 a fall in volumes in Q1, the company was able to bounce back quickly and achieve volume growth in Q2 despite industry decline. The company is doing well to focus on cash conservation and cost reduction after the disruption caused by COVID-19 while maintaining its pace of debt repayment. 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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