Monday, November 14, 2016

Q2 FY'17 Result Updates

I am sharing few thoughts initially, which are strictly mine and has no intention of driving any investors to any conclusion.

Since the last post on this blog, we had series of events which made the markets heavily volatile. Though some of the government initiatives might prove to be very good for India in future, its short term implications cannot be ignored.
In fact, it is predicted that almost all the sectors will be benefitted from this move, but it will take its own time. The reason why markets might react negatively on this is because of uncertainty that it has imposed. However, I personally feel that the impact could be more on un-organized sectors, rather than on big organized players.
Talking about impact on specific stocks, almost all of us know that biggest loser is going to be Real Estate, as it is assumed that 70% of the cash flow in the sector is in black. This move could lead to a break in demand for the sector, and hence reduction in property prices going ahead.
If demand in the sector is affected, it is indirectly posing a risk to some of the home furnishing and paint companies. This was seen in some of the stocks taking a hit during last week. Apart from some big players, names that we are tracking also saw some negative impact. Cera Sanitaryware fell from 2700 to 2200 and Somany Ceramics fell from 650 to 550 within no time.

Apart from this, there was another big event in past week, which was of course, the most awaited event of this year, US Presedential Election. Again, the results went against what most people were expecting and hence we saw a big fall, at least for some time, on the day following the election results. We cannot assume that everything the candidate spoke about during campaign is going to be followed blindly, as of now.
There was a very good line in media, that followed post his election victory speech:
"President Trump looks quite different from Candidate Trump"
This is always going to be true, during elections in any country. Republicans are now expected to do what is best for the States, as predicted by some experts across the globe.
The fall because of results, was mainly due to uncertainty about the policies that Republicans might implement, unlike the win of Democrats, where policies and approach might have remained as it is.
You never know in such cases. The new things might seem difficult to digest initially, but sometimes can prove to be much better than the old one. Just a thought!!

The dual events together led to the fall of India markets, which was much more than other emerging markets in Asia. The mid-cap and small-cap lost even more than the big players, as there is high uncertainty about the impact of demonetization on such small companies.

I don't think I am qualified enough to speak more on these topics. One can do more research on these, by digging more into the comments made by some experts rather than following me on these topics. :)

Finally, coming to where we have the larger interest. We are here to discuss more on long term prospects of some of the companies followed here, rather than some of the short term impacting events.

As we have started the trend from Q1, we will be focusing more on the new names, unless we have some major positive or negative impact on some of our old names. But still, we will have at least one liners on our old stocks, if not more.

Starting with the oldest and the best, Ajanta Pharma has never disappointed us so far. However, the growth has started to slow down a bit, compared to past few years, when it used to show tremendous growth every quarter. These things are bound to happen as you keep on growing, and eventually, you start posting the growth which is in line with the industry average. Having said that, Ajanta Pharma is still better than the average so far. The growth drivers in future would be the sales coming from US markets, where they had negligible presence so far. Now, they have started receiving many approvals from the country, which is why we are able to see, more than 1000% jump in sales from US markets since last 2 quarters. It might continue at least for short term. Because of the same, currently it is trading at highest P/E among all the pharma names, which are almost equal or greater in size.

Granules India, continues to post decent numbers as their margins have kept on growing owing to the fact that they are concentrating more on high margin products. The Q2 numbers were anyways expected to be subdued on account of negligible contribution from Omnichem JV. As per the concall, the same is expected to contribute slightly more in Q3 and most likely to contribute very well in Q4. If things go well in future, we can expect good things to happen in FY'19-20, looking at their plans as of now.

Capri Global saw a major run-up off-late. Not aware of any major change in fundamentals, apart from some positives in Annual Report this year. No added comments from Ganesha Ecospehere from our last discussion. The results were much better this quarter.

Can Fin Homes and Dewan Housing Finance kept on outperforming the industry for a long time, but unfortunately, last week's event proved to be slightly negative for both. However, I personally feel, this sector is likely to benefit from such moves.
That's my personal opinion.

Cera Sanitaryware and Somany Ceramics posted very good numbers, and they got accordingly rewarded, until last week post the event which might have put them under pressure.

SSWL saw another good quarter considering the fact that they passed some 20% reduction in raw material prices to their customers. Interestingly, even after such run-up in last 9 months, it is still trading around 13 P/E, which is much lower than the industry average.

Garware Wall Ropes saw another great quarter, where their sales were up despite reduction in raw material prices. Profits also shot up heavily, reporting some 70% jump. At this stage, it looks like they are well placed to post an annual EPS of more than 40, which makes the stock currently trade at <13 P/E. The balance sheet has kept on strengthening from time to time and now they are almost debt free. Management is confident of reporting strong numbers in Q3 and Q4 as well.

Camlin Fine Sciences has kept on frustrating me with numbers and this quarter was no different. Views expressed about losing quite a bit of interest remains as last discussed.

Dhanuka Agritech and PI Industries were expected to deliver strong set of numbers on account of very good monsoon this year, and neither of them disappointed. In fact both the numbers turned out to be above expectations. Accordingly both of them have been rewarded with good jump in share prices. The stupendous growth in PI Ind was on account of some orders that were taken earlier then expected. However, management is still confident of delivering 15% growth for the full year. The profits would be much higher, of course. It will continue to be steady compounder. The order book continues to be strong at 800 million dollars.

FIEM Ind posted another good quarter especially in terms of sales growth. 23% growth in revenues can be considered one of the best in the industry. Profit growth was moderate this quarter, but with such high sales growth, future looks good as of now. One of the key growth driver continues to be LED segment. They have invested further in 2 of their plants which is likely to aid further growth.

Lincoln Pharma disappointed to an extent. It was probably the first quarter after long time that we saw company reporting de-growth in sales. However, profits and margins continued to impress, and hence the valuation, to an extent.

Salzer Electronics grew pretty well in Q2 and in line with management's expectations. The good part was that their core business grew very well in the quarter. The profits were in check, mainly because of lack of business from EMS segment, which is their high margin business. Barring the EMS segment, which is quite random from Q2 FY'16 vs Q2 FY'17, the results would have looked quite good. However, I am still very hopeful on the company's growth looking at the performance of core business and their future plans, which is very well described in the result presentation.

The other stocks which I mentioned that I am following since past few months were mentioned towards the end of last 2 posts:

Out of these, Force Motors has surprised the most. There was big re-rating which was seen from our first discussion, where the stock saw almost 100% jump. Again, there was no change in fundamentals, it was just that stock went from being undervalued to being fairly valued now, in my opinion. It has been witnessing very good growth for past many quarters, mainly because, apart from its vehicle sales, they are getting good business from Mercedes and BMW, for which they have separate dedicated plant for making engines and axles.
The only negative that I could think of is management's lack of interest shown towards investors. They have never given much insights about their business in public. In some places, it is acceptable, as there is some confidentiality clause when they deal with Mercedes and BMW. However, there is hardly any detailed info given about their core business also. Being such a big company, they should ideally give result presentations, as well as try to connect with investors through con-call.

Srikalahasthi Pipes was another one mentioned earlier. The company was mainly considered because I saw a big valuation gap when I compared it with APL Apollo Tubes. I understand that APL might be much stronger in fundamentals and may be with future prospects, but still, I don't find it enough to justify the present gap. The margins and return ratios are much better for Srikalahasthi, but still it is lagging. The debt position is almost same for both.
The gap may be because of again, lack of information given by management to common investors, as well as non-performance of other group companies. The result for the quarter is not yet out, but it could be slightly weak, considering their furnace plant being shut down for 1 month in the said quarter. However, management is confident for the full year growth as expected. Let's see how things churn out.

Pricol and Poddar Pigments are delivering very strong numbers and are likely to continue doing same for coming quarters. Both seem to be very well placed as far as business growth is considered.

Kitex Garments and Torrent Pharma, may have disappointed many in this quarter, but I am still hopeful about their business prospects and growth returning back. Both have had their issues which led to such numbers. Kitex had issues with one of its major client, which ceased taking its orders from the company, plus there was some deferment in order delivery this quarter which will be passed on to Q3. Management's confidence in retaining its earlier guidance for the full year, in spite of poor H1 seems to be unbelievable. If that happens, that could reward investors big time. But obviously, it is a big risk.

I am not a research analyst, nor an investment advisor. Through this post, I am only putting my views, and which has nothing to do with any action that can be taken by readers on any specific company.