Q4 FY'17 & Q1 FY'18 Result Updates

It's been a long since we had any discussion on this blog.
I apologise for the same but was too much occupied in the professional life.
Anyways, I have not been recommending any new shares on this blog, just sharing my views or my vested interest in stocks. Readers can always ask any queries, I will always try to answers those as soon as possible.

The Indian market in past year, has gone through many hiccups, and it is still near the all time high levels. We saw demonetisation impacting the company's numbers in Q3 FY'17, then we had BS IV transition which had an impact on auto numbers in Q4 FY'17 and now GST roll over impacting in Q1 FY'18. On top of it, every one is aware of how pharma and IT sector has lost its shine, especially pharma sector, with increased competition, export price erosion, stricter USFDA and price regulation enforced by Indian government working together. In spite of these, if your market is still at its highs, it speaks volumes about the strength of the Indian market, as well as the trust shown by FIIs and DIIs.
On current earnings, the market might look expensive, but it seems to be trading on forward earnings expecting some benefit from GST for organised names, great push in infra spending, and housing for all by 2022 promised by government. Also, the auto sector seems to have better growth prospects on increased standard of living and 7th pay commission.

In this post, I will talk more about the companies which have been under pressure, and less about the names where everything is going well.

Ajanta Pharma, Granules India & Torrent Pharma:
The sector has faced tremendous heat in past 6 months, and it is likely to continue with above mentioned reasons. However, I still feel that we are tracking 3 of the better companies in the sector, where I expect the least impact. For Ajanta, the profits have shown decline which has led to its downfall. However, if they atleast keep on growing in sales, they will catch up with profits sooner or later. The silver lining for Ajanta is their new beginning in US markets. It had negligible presence earlier, but now with few approvals, it has started delivering good numbers. The growth in US market is likely to continue which will offset the pressure company is getting from African market. This quarter was also under pressure on account of GST transition in India. They have had history of giving 12-15% growth in India every quarter, which was down 12-15% this quarter yoy. One also has to consider the fact that because of all negatives, the fair value for pharma companies has also come down. At one stage, because of its fundamentals, Ajanta was trading at 40 P/E, which is now down to 22 P/E. All in all, we need to keep an eye on how sector pans out, and each one should take their actions accordingly based on their investment time frame and risk appetite.

Granules India, I don't see a reason why stock price has declined, because the company has not had almost any impact seen on the overall sector. Infact, this quarter, the company showed 10% growth in sales, which they were not able to show in past 5-6 quarters. The profits were flat this quarter just because of the fact that Omnichem JV didn't contribute at all this quarter, where it had given around 9-10 Cr profit last year same quarter. However, the management has informed that the overall sales for the year is not going to be impacted, it is just the nature of business where income might move quarter to quarter. Recently the company has received EIR for Gagillapur facility from US FDA. Also, last year US FDA gave 7 observation to Visag facility of Omnichem, where they have now mentioned that they don't want further inspection and EIR might come anytime. In short, lots of positives for the company, and it will be interesting to watch full year numbers this time, as company earlier mentioned that they are expecting blockbuster FY'18 and FY'19.

Torrent Pharma falls is one of the recent companies that we have started tracking, but again, there has been no appreciation. Performance wise, it still looks good to me, but you never know these days. The company has started consolidating on the high base set by gAbilify sales last & last to last year, but the price erosion has started taking toll on its profit. In that case, I would put it in league with Ajanta Pharma, where it will be interesting to see if out-performance in the sector could still help these companies turnaround in future.

Dewan Housing, Can Fin Homes & PNB Housing Finance:
Housing Finance companies have been on a roll with terrific performances and very bright prospectus. The government's effort in the mission of housing for all by 2022 through the concept of affordable housing is giving a great push to these companies.

We have been tracking Dewan Housing Finance and Can Fin Homes since very long, almost 3 years now. Apart from these, as mentioned in my last update, that was in Feb'17,

We had started tracking PNB Housing Finance. It has been the fastest growing HFC in past many quarters, and management has confidently mentioned that they are going to outperform the overall industry in FY'18 also.
As such, there are no new updates or threats to these companies, so we will keep it short.

Cera Sanitaryware & Somany Ceramics:
While the companies in this sector were just getting ready to get rid off all demonetisation blues, they had to face GST transition pressure this quarter. Cera might not have come up with numbers yet, but Somany declared a weak set of numbers on roll out with GST. But overall, if you look at the sector, there are many unorganised players. So GST roll out will eventually be extremely helpful to these companies, as the gap between organised and unorganised companies will end in terms of taxes, which would result in higher sales of branded products. Also, if we say that government's push in housing for all by 2022 is going to succeed, then this is one sector which is going to benefit indirectly. Overall a positive stance on these companies once GST transition process stabilises.

Steel Strip Wheels, Force Motors, FIEM Ind & Pricol:
As discussed already, if we are positive on Auto sector for long term, then we have to be positive on Auto Ancillary space. In case of Force Motors as well, rather than its core business, I am positive on the division which supplies engines-axle to Mercedes Benz and BMW in India. The reason being, with increased standard of living, and new models launched by BMW and Mercedes Benz which fits into budget of higher & higher middle class people in India, the sales are likely to zoom in next few years for these car makers. As per HDFC securities report, the sales of luxury cars in India is expected to triple by 2020. This indirectly makes the picture rosy for Force Motors. Obviously, their business is also pretty good and they are enjoying a sort of monopoly in few models.

Steel Strip Wheels has been performing pretty well. The result for Q1 FY'18 might look flat, but the reason behind it is the reduction in raw material prices seen till May-June'17. In terms of volumes, their sales were pretty good even in Q1. Now, since the raw material prices have gone up and last 1 year being the one where prices declined by 20%, the result for next few quarters are expected to be good. The volumes are increasing plus prices have increased, which was the reason why company was able to post 41% growth in turnover for July month. The trend is likely to continue which is why management has confirmed that this quarter is going to be the best in terms of revenues.

Pricol has seen almost no movement since we have started tracking. But still, I am positive on the business, especially considering its product line and the sort of market share it is having in those products. The primary reasons for no appreciation since Nov last year, was selling of shares by promoters and amalgamation process apart from other casual impacts on the sector. It will be to interesting see the numbers going forward, especially after Q3 this year, as they will become comparable yoy post amalgamation process.

FIEM Ind faced its worst quarter in Q4 FY'17 because of BS IV transition. The sales of 2 wheeler vehicles were badly impacted because of the same, where 96% of its revenues are coming. The sales for the month of Apr May and Jun have been relatively better, which will start having positive impact on the results of the company. Wait & watch here.

Plastiblends Ind, Poddar Pigments, Gulshan Polyols & Dynemic Products:
Some of the leading experts have said that if we consider 2010-2015 as the golden years for IT and Pharma sectors, then the years from 2015-2020 are going to be for Specialty Chemicals. It seems that their analysis was perfect looking at the returns most of the companies in the sector has given in past 2 years. Most of the companies we are following have been giving decent numbers and have seen good appreciation from when we started tracking them. One of the weaker link has been Gulshan Polyols but in terms of sales, I think they are doing pretty well. It is their profit which is not catching up that can boost the market demand. But as always, I am fine if company is growing in sales.

Dhanuka Agritech, PI Ind & Shree Pushkar Chemicals:
Again a sector which has faced some heat off-late. Both of our companies came out with sluggish set of numbers, but by no means have the fundamentals changed. Dhanuka still remains one of the better bet in agro-chemical sector. The product line is very strong with good acceptance among farmers. The balance sheet and all return ratios are pretty good.

PI Ind as always, I see it as the model company in terms of balance sheet strength, margins, return ratios, heavy order book and management's vision. The flatness in result was mainly due to GST destocking and some CSM orders getting deferred to coming quarters. Overall company has guided 10% growth in spite of weak Q1. Order book in CSM is still at 1 billion $. The management is quite confident about second half of this fiscal.

New name I am tracking in the sector is Shree Pushkar Chemicals & Fertilizers. The company is consistently delivering good numbers. Even in this quarter, when the prices of Vinyl Suphone and H-acid had fallen from past year and there was some GST Impact, company still came out with 23% growth in sales. It is virtually debt free company. The management has guided for total revenues of around 410-425 Cr as compared to 324 Cr last year. It is by no means cheap in terms of valuation, but still with this kind of growth posted, one can definitely have a look at this.

Control Print, Ganesha Ecosphere, Garware Wall Ropes & Talwalkar Fitness:
When things are going perfectly fine, you are not left with much to say about. That sums up all the companies in this segment. Each one is growing at a decent pace and are mostly outperforming their sector. As such, valuation wise also, I see each of them getting well appreciated since we started following these companies. Nothing new to add.

Indo Count Ind, Lincoln Pharma & Salzer Electronics:
I see these companies as the ones who have been poor performers in this mega market rally. The reason for Indo Count is again the sectorial problem where all textile companies have failed to deliver good set of numbers. On top of it the base of last 2 years was very high as it used to grow at 20-30% in that period. Now it has started consolidation and the market is not happy with that. On books, they are still standing tall. The debt:equity now stands around 0.33, which is rarity in the sector, and this is one company which has come back from debt re-structuring. Frankly speaking, I am not sure on its future looking at how market is reacting to consolidation phase, and hence I won't be presenting my stance on it.

Lincoln Pharma also in seeing de-growth but that is more because of the fact that they have stopped one of their businesses which was eventually loss making for them and now they have shifted entire focus on pharma range. The good part is that most of their sales are coming from Indian markets so in a way they are safe from US FDA strictness. :) As such I don't see much issues overall, but you know Mr market, they believe in proof. Unless they see performance, people will keep themselves away from such names. And in a way, that is right as well.

Salzer Electronics is altogether a different case. I don't see much negatives surrounding it, but no movement in price. The good part is the company has been introducing new products in market and receiving contracts from high tech foreign agencies. Promoters have increased their holdings recently. I am eagerly waiting to see how numbers this year pans out.

Srikalahasthi Pipes, PSP Projects & Kolte Patil Developers:
Coming to the most talked about sector of markets these days. People see this sector especially the organised players as the one of the mostly likely to benefit from government moves. Srikalahasthi Pipes has been the one we have been tracking since long. There has not been any change in fundamentals since then. In fact this quarter, the company saw 53% jump in sales, which is quite pleasing to eyes. The management concerns has still kept price in check. Let's see if it can overcome it any day.
The 2 new companies from this sector that I have started tracking are PSP Projects and Kolte Patil Developers. Both these companies are concentrated in specific regions and hence the size of the companies are small. Their vision though are not, and they have been doing well to achieve that.

PSP Projects has been recently listed company which caters to industrial, institutional, government, government residential and residential projects in India, mostly though in Gujarat. They have very good reputation of delivering almost all projects before time, which is one of the reasons why they have very strong order book from government organizations.

Coming to Kolte Patil Developers, most of their projects are concentrated in Mumbai, Pune and Banglore. The good part is that all 3 cities have many service class people who are looking for affordable housing properties, where Kolte Patil has good presence. The growth off-late because of the same reasons have been very strong and is likely to continue in my opinion. RERA introduction is also expected to help some of these branded companies in real estate, as they have already been more or less compliant. The small builders are expected to face some pressure out of it. It is now up to these companies to utilise the opportunity well.

Among our overall list of stocks, the ones I have stopped tracking are Capri Global, Camlin Fine Sciences, Suven Life Sciences, Swiss Glascoat, TCPL Packaging and Flex Foods. It is not that I have lost confidence in these companies, but it is more because of limited number of companies that I like to track on regular basis. The above listed companies might be performing well, but still, I am not in position to give my detailed look into it. Some of these names have already given multi-fold returns since we started discussing here, but from now on, I won't be giving a detailed views on these.

Discloure: 
I am not a research analyst, nor an investment adviser. 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.

Q3 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.

This was probably the most anticipated result season for past many quarter, as Indian economy went through a major reform in form of demonetisation of major currency notes with an intention of curbing the black money. The same was bound to have negative impact on various sectors and their growth, and eventually the growth of nation, as one cannot deny the extensive use of black money in India, especially among the companies from un-organised sector. Among the organised ones, the impact was expected to be maximum in real estate & construction sector, followed by auto sector and then to some of the sectors which are directly related to those 2 sectors like furnishing, cement and auto-ancillary, to name a few. Every body was anxious about how the numbers would turn out to be for companies in those sectors, and how management would ensure investors confidence in their respective companies.

The above para negative mindset about the government's move on Indian market, however, as usual, there are always 2 sides of the coin, and demonetization was no different. There are few positives as well, but most of them will take time to reflect in form of numbers, and hence are lesser discussed then the negative ones. The move is expected to improve government spending, especially in infrastructure, which would benefit the nation and indirectly benefit some of the companies from the most beaten down sector i.e. construction and real estate. The move in fact, is also expected to bring down inflation and hence the interest rates, which would enable common people to invest more in properties and their vehicular needs.

Coming to numbers, I feel that they were not as bad as it was expected,.

Ajanta Pharma continues to post decent growth, aided by huge growth coming from US market, where it had almost negligible presence till last year. The growth from some of its larger export market seems to be flattening, which can be considered as a reason to worry. But if US and India continues to contribute well, they should not see a major impact in their overall growth. Margin continues to outperform peers which is a big positive. The stock might still continue to act as steady compounder for next few years.

Granules India also posted decent numbers. With company trading around 18 P/E and having lots of positive triggers in next 2 years, most of the brokerage houses are bullish on the company and have given their targets in the range of 150-220. Recently, one of World Bank unit IFC has confirmed investment up to 47.5 million dollars in the company, which shows their confidence in future of the company.

Can Fin Homes and Dewan Housing has shown superb run away rally in past few days, as it is assumed that NBFCs are most likely to benefit from the government's move. Both of them are well on track and have continued their performance even in last quarter. Capri Global somewhere falls in the same category and hence is also likely to benefit. Some of the new names that I have come across in the sector, are Bajaj Finance and PNB Housing Finance, which obviously have run up a lot in past, but still from a business perspective, they seem to have very bright future. Currently, I am not holding either of them, on account of lack of cash in hand.

Now coming to one of my favorite sector, which unfortunately took a hit on account of demonetization i.e. home furnishing, where we have been tracking Cera Sanitaryware and Somany Ceramics from long time. The good part was that both the companies outperformed their peers and posted results which were much better than expectations, and accordingly market has rewarded them. Even in times of crisis, both of them are not very far from their all time highs. I continue to remain positive on both of them.

Coming to another sector which was indirectly expected to take a hit on account of such move, is auto ancillary. We have been mainly tracking SSWL and FIEM Ind from that sector. The results were surprisingly contradictory. Even in such a quarter, SSWL showed 19% growth in sales which is phenomenal. The same was mostly aided by sales in truck and tractor segment which has seen significant uptick in recent times. In fact, on account of that the company even raised its sales target for this quarter. The profit saw a decline, but as I always say, I won't mind company posting de-growth in profit for one or two quarter, if their sales growth in on track. And as such, if you see, the company is still trading around 15 P/E. I know debt is a concern, but one needs to consider nature of business and the fact that they have not let it increase in past 4 years. The stock has already appreciated close to 200% from the time we started the discussion here. Talking about FIEM, the sales saw a decline, which was quite obvious, as 2 wheeler sales were most impacted in the auto sector, and 96% of their revenues come from there. Even in that sector, Honda Motors saw the biggest de-growth which is the highest contributor to FIEM revenues. So, considering all these, I don't think the numbers were bad. I won't comment on price, as it has already seen good appreciation from the time we started its discussion.

No change in views for PI Ind and Dhanuka Agritech. Both seems to be doing very well, and accordingly they are trading at almost their all time high levels.

Garware Wall Ropes is getting better and better with every quarter, and seems to quite easily achieve the management's vision of 2020. Sales growth was moderate on account of decline in domestic sales due to demonetization but it was offset by higher exports, which is very good sign. Growth would certainly be higher once the domestic impact is over.

Lincoln Pharma has continued to see a decline in sales, because of the fact that they have stopped their trading business in India. However, the sales of their core products is growing fast. The decline in sales seems temporary. The margins are also improving thick and fast. The contribution from exports of branded products is also increasing and management is expecting it to contribute 50% of the total revenues in next 3-4 years. It might look cheap at current market price, but may be market is in a wait and watch strategy, as it might not be fully convinced with management words. Who knows!!!

Salzer Electronics has continued to face challenges, on account of lesser orders from EMS compared to last year. Also sudden rise in commodity price kept the profits under check. The company has decided to increase the price from Jan onwards, which will help regain their margin levels. Good part is that the company has received order worth 18.7 Cr in that segment recently. The other positives being that the company has started the commercial production and invoicing of Three Phase Dry Type Transformers from Jan'17. Also the company received its first order from Smith's Detection which is a German based company manufacturing Airport Security X-Ray Machines and received first order from Alstom. All in all, it seems that they have few triggers for growth in future. 4th quarter numbers will be interesting to watch out for.

Srikalahasthi Pipes, one of the companies we started discussing off-late, is also from a sector which was likely to get impacted. However, the impact in results seems to be very limited. The growth in sales and profit both were flat yoy, which is not bad considering the situation in the sector. Also, the margins continued to remain at same levels, and much higher than its peers. If we go by what management said while the shutdown was going on in Q2, the Q4 numbers should be pretty good, as they did not reduce their annual guidance, in spite of one month shutdown in that quarter. Higher debt levels, lesser transparency of management towards investors, and non-performance of other group companies continues to keep the stock below 10 P/E, but lets see for how long, if they keep on performing well. The increased spending in infra, post demonetization should also help the company get good number of orders.

Next in the list is Force Motors. Results as expected saw a 15% decline in sales as well as profits. One of the reason was mild decline in sales of luxury cars (Mercedes and BMW), which is very likely to recover in Q4, and hence indirectly helping Force Motors. Company is having very good market share in LCV segment, where demand is expected to rise after one lackluster quarter. Also with new models launched by the company in that segment, their market share might increase further.

Kitex Garments posted another strong set of numbers, and it seems that the management confidence as seen in the concall post few major concerns in the past, does not seem to be over optimistic. However, market will always take its own time, before giving back the similar valuation to the company, as it had in the past.

Poddar Pigments also delivered good numbers, and it continues to enjoy decent market share along with Plastiblends in the sector. Plastiblends has been followed here since long time, but with the expectation of masterbatches industry growing at around 15-20% CAGR for next 5 years, I thought it isn't a bad idea to go ahead with 2nd largest company in that sector as well. Plastiblends has already given multiple returns since we started discussing.

Pricol also saw a minor impact on account of government's move. However, even there the impact is not expected to last long with most of the auto companies getting their sales back on track. The company was not getting traded from Dec to mid Fed on account on procedural reasons due to the amalgamation taken up by the company. With excellent customer base, both from domestic as well as international auto companies, and with good market share of some of its products in the industry, the company might well get back to good growth from Q4.

Discloure:
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.