Thursday, January 11, 2018

Q2 FY'18 Result Updates

One more time, have to apologise for being so late in updating the results. Professional life is taking some toll on my passion. :)

As you know, SEBI guidelines doesn't allow me to recommend stocks through this blog because of justified reason. Hence I will focus on just discussing about the possible growth prospects of each company.

Views shared below are solely mine and not to be considered as advise to buy or sell any stocks.

Markets these days seem to be in no mood to give up its amazing ride. Most of us surely have a doubt if the market valuations are getting over-stretched. But do the markets actually trade on basis of valuations?
Since last few quarters, every time we feel the results are not as good as expected, but still prices have gone up. We start believing that next quarter would be good, and valuations will become justified. However, the same story repeats. In spite of all these, the market is still able to find investors money coming in, may be because people are ready to accept slight impact of 2 major reforms India has gone through in last 1 year.
Apart from that, one more boost came following the slight hiccup in Gujarat Elections as people are now almost confident that the budget this year would beat expectations of one and all. In my opinion, markets are running more on sentiments now. When those same sentiments goes down, then also, it won't care about the valuations. So, we better stick to our thinking of being stock specific.

Let's reverse the trend and start with companies in hot sectors. Also, the focus will be more on new names this time.

Srikalahasthi Pipes, PSP Projects & Kolte Patil Developers:
Each of them were able to show tremendous growth in past quarter, and somewhere are proving the point why Infra is one of the favourite sector right now.
Srikalahasthi Pipes, we have been discussing for long now. The fundamentals have been intact. The performance has been impressive, but still seems to be going through challenges in terms of valuations, especially when we compare it with peers. The reason is already discussed earlier. It seems to be because of other companies being held by promoters and their financial stability. One can look at prior post to get into more details about the same. Somewhere though, we have seen a slight improvement in valuations, it could be either because of continuous out-performance or could be because people are slightly more confident about the promoters. The result this quarter might look unbelievable at first look, as they were able to post 94% sales growth, however, one has to consider the fact that company had annual shutdown of about a month during same period last year. So, it is not exactly comparable, though I don't deny it still looking good. Higher prices of coking coal is one of the major reason why company is not able to show great profit numbers in spite of heavy revenue growth. The cost seems to be reducing, and it should benefit their margins going forward.
One can see in the last post, that one of the new companies we started discussing about, was PSP Projects. The stock has seen a great run up in last 6 months. Results also seems to have justified the uptrend. The company has about 2700 Cr worth orders which are to be executed in next 24-30 months. Looks amazing when you know the coming is currently having annual revenues of about 400 Cr. One of the major reason is the Surat's project worth 1575 Cr. If this order gets executed in perfect manner, it could take company to new level and they could easily mark their presence in the industry as of the finest developers. They continue to remain focused on projects in Gujarat only. Should they start looking for projects outside Gujarat or should they continue to concentrate on orders in hand and look to deliver those in best possible way. The debate is never ending. Let's see how things unfold.
Kolte Patil Developers, another sound company in its space. I had given all reasons in previous post on why I like the company so much. Somewhere it is also because I have seen their projects and the standard of construction. The rise that came in last 4 months was always on cards. Had to happen some day with the kind of fundamentals the company has. Results were once again impressive with sales growing 72% yoy and profit about 50% yoy. The latest investor presentations says a lot about company and leaves me with no other things to be discussed. One must read that and take their own call.

Control Print, Ganesha Ecosphere, Garware Wall Ropes & Talwalkar Fitness:
As mentioned last time, this is the most stable set of stocks we have. Each of them have given good returns and are now sitting pretty at those levels. The results for each of them were decent this quarter considering the impact of GST.
For Garware Wall Ropes, most of their Q2 revenues comes from fisheries. However, as we all know, such segments take their own time to settle down with tax reforms, which is why, company had a slight impact on their revenues. The positive news for the company though is that the government has reduced GST on fish nets and few other agricultural products, the company deals with.
Talwalkar Better Value Fitness recently announced that the company is planning to open 100 gyms in Sri Lanka.
Will definitely share more on these companies if there is any twist in fundamentals.

Dhanuka Agritech, PI Ind & Shree Pushkar Chemicals:
Good recovery in all the above stocks after some hard time post Q2 numbers. Probably because of high expectations from Budget 2018 for this sector. In my opinion, irrespective of how the budget turns out, I don't think any of these names are going to face issues in posting decent growth in coming years. Each of them are having strong presence in their respective segments. In our earlier posts, we have discussed a lot about PI Ind and Dhanuka Agritech.
Shree Pushkar is relatively new on this blog and hence would like to update on it a bit. It is going through an expansion phase which is going smooth. Recently the company announced that an additional capacity of 3000 MTA of the dyes plant has been created at its the plant and has commenced trial runs in end November 2017. The management has already guided for 400 Cr revenue this year, which means we can expect close to 225 Cr from last 2 quarters. So far, company has never even achieved 100 Cr in 1 quarter, and hence makes it interesting to watch out in next 2 quarters. May be the recent rise to new highs could be on account of the same. Let's see.

Plastiblends Ind, Poddar Pigments, Gulshan Polyols & Dynemic Products:
The specialty chemicals segment continues its nice journey which started way back in 2014, and each of these companies has enjoyed its ride along with the sector. However, the big negative for these names is coming in form of crude price rise in last few months. It has started impacting margins for various companies.
One company that didn't enjoy an equivalent ride as others is Gulshan Polyols. The reason is quite evident. In spite of good revenue growth, company is not able to convert it into good profit, which is why it looks fairly priced even without any major price rise. The reason is the rise in crude prices, which is not in company's hands, though it will be interesting to see if they take any steps to mitigate it, as it is one of the main raw material for the company. The most interesting part in one of the concalls or may be it was AGM, I saw company claiming to achieve around 700 Cr revenues this year and around 1000 Cr in coming year (Not sure where I read this.) I am eagerly waiting to see if that is actually possible. Though in my opinion, unless they improve margins, not sure if investors would give enough attention.
The other 3 companies are doing good, but it will surely be important to watch how they are able to manage raw material price rise.

Steel Strip Wheels, Force Motors, FIEM Ind & Pricol:
Auto sector is catching up with Infra in turning out to be one of the most sought after sectors in Indian market. Luckily we do have few companies in our list. Most of them though are actually auto-ancillary, which in a way, I feel is even better placed. That is because with initiatives of transitioning from BS-III to BS-IV and from BS-IV to BS-VI later, auto companies have to take some hit of managing inventory. But for auto ancillary companies, the demand is not going to stop. With each upcoming vehicles, they will always get indirectly benefited. On top of it, if we have a company which is a step higher, by penetrating equally well in overseas markets as well, then it is certainly icing on the cake. Yes, I am talking about SSWL. Amazing journey it had since last few quarters. Just imagine, every quarter, management coming out and saying that next quarter we will have our highest quarterly revenues, that speaks volumes about the management integrity and excellence. Sales is shooting up with increase in Chennai plant's capacity utilisation. Profit not yet catching up, still enough to give company a decent valuation now.
Force Motors continues to face some heat in their core business. However, contract manufacturing can provide huge opportunity for them going forward, with some of the industry majors being tied with them. In addition to Mercedes and BMW, we saw Rolls-Royce also joining the league of tie up with force motors. It will be interesting to see how the story unfolds, though it will definitely take some time. Surprising when company declared its monthly numbers for Dec'17, we saw a huge increase in production volumes. Not sure why was that, but it makes one think about upcoming quarters. Or it could just be my optimistic thinking.
Pricol remains where it was. No major price increase or decrease and neither any shift in fundamentals. Hence nothing more to update on it since last thread. Still waiting for numbers to stabilise post amalgamation events.
After facing challenges for 3 quarters, the Sept quarter numbers looked pretty decent for FIEM Ind, especially considering the impact of GST. The sales were up 12% in Q2, which is close to their average growth. Profit also quickly catching up. Let's see how quickly the company start posting their usual growth. Don't think its too far.

Cera Sanitaryware & Somany Ceramics:
Both hitting all time highs in anticipations of great infra & housing push from government. Results were flat for both the companies because of obvious reasons, though Cera atleast posted around 20% sales growth even in such environment which is commendable. Once GST stabilises, these companies are likely to see maximum benefits. As such, no updates since last thread.

Dewan Housing, Can Fin Homes & PNB Housing Finance:
It came as a big surprise for every one when suddenly the investors interest started moving away from housing finance names. That is exactly what happened with PNB Housing Finance and Can Fin Homes. However, that had to happen someday. Both of them had an unbelievable journey in last year and half. In last 5 months though, both the companies lost close to 30% from their highs. Dewan Housing is an exception among these names, may be because it was not as higher valued as the other 2. Who knows. But fundamentally, there are no changes in any of the names in my opinion. Results should remain as impressive as some of the past quarters.

Ajanta Pharma, Granules India & Torrent Pharma:
This is one of the most discussed sector in history of this blog. Hence thinking of keeping it short this time. In any case, I don't have much to update. When I look around, it seems people have started writing off pharma saying their time is over and all, but frankly speaking I doubt such opinions. Whenever cyclicals have outperformed, defensives have taken a hit. That's common behaviour, and that is what is happening with pharma. However, I don't deny the fact that there has some impact, but such things are part and parcel of company's or even sector's life cycle. The competitive ones will eventually come of this phase and prove themselves. Out of the 3 names we are tracking, each of them seems capable enough to do so. For Torrent Pharma I feel the base is now settled. Last year almost during the same time, the benefits of gAbilify subsided. So, from next quarter onwards, it will be interesting to watch for the growth, the company is able to post.

I saw few queries about my holdings. Currently, I am holding most of the names above except few where I have booked profits. Apart from that list, I hold NOCIL, Banco Products and Bhansali Engg Polymers since last 6 months.

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.