CDSL

A research analyst working with a leading mutual fund says investors should not get depressed by the fall in revenues of CDSL during Q3FY21 as compared to the previous quarter, as the drop in revenues is a temporary affair and during the quarter profit margins have recorded a handsome rise. Revenues of CDSL declined by 3 to 4 per cent to around Rs 86 crore due to a drop in transaction charges, among other things. The transaction revenue run-rate, which almost tripled yoy, declined 6.9 per cent qoq due to moderation in retail activity. However, the profit margin expanded 409 bps qoq to 65 per cent due to lower provisions and overall cost savings.

Future prospects are bright as the company continues to get marketshare, the incremental share during 2020 being 86 per cent. The company continued to gain BO account share from NSDL and it stood at 58.1 per cent in December 2020 as compared to 50.1 per cent in December 2019.

This augurs well for CDSL’s financial performance going ahead. Its revenues are expected to grow by 45 per cent to 50 per cent during the next 3 years, with the EBITDA margin growing to 62,163 per cent. The share price, which has already trebled from the 52-week low of Rs 207 to around Rs 645 as of now, is expected to cross the Rs 700 mark in the very near future.

(CMP Rs. 760.25, 52 week H/L Rs. 770/211, BV Rs. 54.51, FV Rs. 10)

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AIA Engineering(BSE Code 532683)

An Ahmedabad-based leading stock broker and a keen observer of stock market trends is bullish on AIA Engineering, a Gujarat-based company which is the world’s second largest manufacturer of high-chrome grinding equipment used in cement, mining and power industries, among others. Some people call it an FMIG (fast moving industrial goods) company.

The company has a strong balance sheet. Though at the end of 2020 it had a debt of Rs 161 crore, it was also sitting on a cash pile of Rs 11,640 crore. The company’s liquid assets are also on the higher side of its liabilities, according to its last balance sheet. The company’s financial position is also very sound. As on March 31, 2020, the company’s reserves and surpluses stood at Rs 3,593 crore – over 190 times the tiny equity capital of Rs 18.86 crore.

AIA is doing quite well on the financial performance front. During the last five years, its sales turnover has expanded from Rs 1,777 crore in fiscal 2016 to Rs 2,498 crore in fiscal 2020, with profit at the net level rising from Rs 616 crore to Rs 833 crore during the same period. During the first 9 months of fiscal 2021, sales have amounted to Rs 1,773 crore as compared to Rs 1,312 crore in the same period five years ago, and the net profit during this period has gone up from Rs 230 crore to Rs 394 crore.

Needless to say, the share price is continuously moving up and will soon cross the Rs 2,000-mark.

(CMP Rs. 1952.00, 52 week H/L Rs. 2225/1230, BV Rs. 419.60, FV Rs. 02)

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Amber Enterprises India (BSE Code 540902)

A knowledgeable research analyst tracking the engineering sector, among other things, favours investing in Amber Enterprises India, the country’s largest contract manufacturer of fully built air-conditioner (AC) units as well as components of ACs. It manufactures ACs for almost all leading brands, including LG, Daikin, Hitachi, Voltas, Whirlpool, Godrej, Samsung, Toshiba Panasonic and Blue Star.

The company has made remarkable growth during the last three decades of its existence. The pace of growth would have been all the more impressive but for its poor negotiating power vis-a-vis its powerful customers — leading AC companies. Hence, it has to operate at very low profit margins. Still, the prospects for Amber Enterprises are highly promising as demand for ACs is steadily growing in the country on account of growing urbanization, rising incomes and improving standards of life. Little wonder, all leading AC companies have to depend on Amber for quality manufacturing. Not surprisingly, during the last five years, the company’s sales turnover has expanded from Rs 978 crore in fiscal 2016 to Rs 3,003 crore in fiscal 2020, with the profit at net level spurting from Rs 20.42 crore to Rs 117.94 crore during the same period.

The company’s financial position is very sound, with reserves at the end of March 2020 standing at Rs 1,049 crore, over 33 times its equity capital of Rs 31.45 crore. Shares of the company are quoted in the Rs 3,000-3,100 range and its prospects ahead are considered to be highly encouraging. Little wonder, FIIs have already accumulated over 25 per cent of the equity of the company.

(CMP Rs. , 52 week H/L Rs. , BV Rs. , FV Rs. )

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Sun Pharmaceuticals (BSE Code 524715)

An equity research analyst of a leading brokerage house is bullish on Sun Pharmaceutical Industries, popularly known as Sun Pharma. According to him, Sun Pharma’s speciality business is on a strong footing and is expected to gain traction going ahead. Two of its speciality products witnessing a sustained rise in prescription numbers and sales have been almost doubled over the past year, mainly on account of strong growth in the US, while expansion in Europe and strengthening in Japan have also supported this growth. The company has a strong new product pipeline in the US with 90 ANDAs and 8 NDAs awaiting approval from the US FDA and expected to unfold in the near term. This, coupled with growth in the base business, would drive the US sales higher. The domestic formulations business is on a strong footing backed by sturdy growth in chrome therapy. Collectively, the US and India constitute around 60 per cent of the company’s overall revenues and a strong growth outlook across both the geographies augurs well from a growth perspective.

The company has put up a strong performance on the financial front. During the last five years, its sales turnover has expanded from Rs 7,864 crore in fiscal 2016 to Rs 12,532 crore in fiscal 2020, with the profit at net level more than trebling from Rs 1,088 crore to Rs 3,211 crore during this period. The pace of growth continues in fiscal 2021 with sales turnover in Q3 FY2021 amounting to Rs 3,388 crore as compared to Rs 3,013 crore in the corresponding quarter last year, and the net profit rising from Rs 468.76 crore in Q3 FY2020 to Rs 555.56 crore in the same quarter this year.

(CMP Rs. 614.30, 52 week H/L Rs. 654/414, BV Rs. 187.90, FV Re. 01)

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V-Mart Retail (BSE Code 534976)

A knowledgeable HNI (High Networth Investor) is accumulating V-Mart Retail, which has succeeded in building a strong footing in tier II to IV cities. The company follows a cluster-based approach of adding stores within a radius of 50-100 km, which gives it better economies of scale, supply chain efficiencies and better understanding of fashion needs of the specific region. By now it has set up 274 stores, of which around 80 per cent are in non-tier I cities. These stores are in 190 cities and the company’s target is to penetrate 500 cities and towns going ahead. Though competition in this business is growing, V-Mart Retail is not adversely affected as it possesses the first-mover advantage.

Over the last 18 years, the company has succeeded in establishing profitable store economics with new stores breaking even in the very first year of operations and having a payback period of 2 to 3 years. As a result, it has been able to fund its business growth through internal accruals and IPO process. Except only one year (fiscal 2020), it has consistently generated FCF (free cash flow), leading to a virtually debt-free status.

Having made a mark in tier II to tier IV cities, the company has emerged as the country’s leading value fashion retailer, with the products offered including mainly apparel, which is the dominant category, followed by non-apparel and kirana. The company has built a scalable and efficient business model to grow and expand in a calibrated manner for several years to come.

V-Mart Retail is making steady progress on the financial front, the pandemic year 2020-21 being the only exception, when it incurred a fractional loss of Rs 6 crore. The company will re-enter the growth path once the pandemic era is over. Sales turnover which had declined from Rs 1,662 crore in fiscal 2020 to Rs 1,094.5 crore in 2021, is likely to cross the Rs 2,000-crore mark in a couple of years with the profit at net level crossing the Rs 100-crore mark.

(CMP Rs. 2805.65, 52 week H/L Rs. 3130/1514, BV Rs. 397.10, FV Rs. 10)

Blue Star Ltd. (BSE Code 500067)

A senior investment officer of a leading bank is bullish on Blue Star with a long term perspective. The company is a leading player in the air-conditioning (AC) industry enjoying almost 12.5 per cent market share. Future prospects for the company are highly encouraging as the company is constantly expanding its distribution network and looking to add new dealers in metros and tier 3-4 and 5 cities. At the same time it is also establishing its own distribution network. It is also establishing its brand in e-commerce channels. With a view to further leveraging its brand strength and distribution network, the company has diversified its product range by taking up the manufacturer of products such as water purifiers, air coolers and air purifiers.

The company has aligned its long term focus on reducing import dependency and remain sanguine of government's push to develop a local ecosystem for component manufacturing for the AC industry. The company is striving to expand its e-commerce sales as the prospects are highly promising. According to experts, India's e-commerce opportunity is worth US$ 35 billion and should double in the next 4 to 5 years. At present the company's sales through e-commerce route is only 6 per cent and the management has targeted to raise it to over 20 per cent by fiscal year 2024-25.

Needless to say the company is growing from strength to strength on the financial performance front. During the last five years, its sales turnover has steadily increased from Rs. 3531.50 crore in the fiscal 2016 to Rs. 4780.49 crore in the fiscal 2020 with the profit at net level hovering around Rs. 120 crore during this period. The company's financial position is sound with reserves at the end of March 2020 standing at Rs. 839.43 crore - over 43 times its equity capital of Rs. 19.26 crore. The management has adopted an investor friendly policy by making as many as six bonus issues so far and offering hansome dividends, the rate for the last couple of years being 500 per cent.

(CMP Rs. 915.00, 52 week H/L Rs. 1025/451, BV Rs. 80.70, FV Rs. 02

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