VIP Industries(BSE Code 507880)

An equity research outfit of a leading bank is bullish on VIP Industries, a leading manufacturer of various types of luggage, backpacks and handbags, as the company has been doing very well even during the pandemic period and is most likely to do much better once the pandemic ends. During Q1 of fiscal 2022 (April to June 2021), the company has performed exceedingly well, viewed in the context of the Covid19 situation. With sales turnover shooting up by 411 per cent to Rs 206.2 crore, the company has registered a gross margin of a healthy 51 per cent (against 42 per cent in the corresponding quarter a year ago).

Prospects ahead are all the more promising as the coronavirus problems have started declining. With the end of the pandemic, there will be a boost in demand for luggage items and VIP is in a very good position vis-a-vis its peers.

First of all, the company has set up manufacturing capabilities in Bangladesh (for soft luggage) which sharpens the competitive edge of VIP over its peers who have to depend mainly on imports. Again, the company has excellently maintained its balance sheet with a stringent working capital policy, a virtually debt-free status and a healthy RoCE (which is 30 per cent-plus). This has enabled the company to effectively manage the challenging environment:

Prospects going ahead also look highly encouraging, as luggage being the proxy to the travel and tourism industry, is well- placed to benefit from the recovery post the relaxation on travel restrictions in the wake of the easing pandemic situation.

(CMP Rs 449.00, 52 week H/L Rs 499/268, BV Rs 36.60, FV Rs 02)

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Advanced Enzyme Technologies(BSE Code 540025)

A veteran HNI (high networth investor) is steadily accumulating Advanced Enzyme Technologies (AET), which is a focused research-driven Indian enzymes company with products developed from 68 indigenous enzymes and probiotics.

The company, which has seven manufacturing and six R&D facilities consisting of three integrated fermentations, recovery and formulation facilities, one extraction and recovery facility and one satellite blending, mixing and formulation facility, is doing very well on the financial front also. During the last three years, its sales turnover has expanded from Rs 419.5 crore in fiscal 2019 to Rs 592 crore, with the profit at net level inching up from Rs 111 crore to Rs 146 crore and earnings per share (EPS) entering the double-digit space of Rs 13.1 against the earlier Rs 9.9. At the end of March 2021, the company’s RoE and RoCE stand at comfortable levels of 15.1 and 19.4 per cent respectively. The company has started the new fiscal year 2022 on a buoyant note with sales rising 24 per cent in Q1 FY 2022 at Rs 137 crore and net profit edging up 11.1 per cent to Rs 38 crore. No doubt seeing better prospects for the company, the share price has moved up from Rs 275 to Rs 399 during the last three years. The HNI believes that even the current price is attractive viewed from a long-term perspective.

(CMP Rs 367.40, 52 week H/L Rs 503/196, BV Rs 86.80, FV Rs 02)

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Ambuja Cement(BSE Code 500425)

The dean of an institute teaching trading techniques in stock markets favours investment in Ambuja Cement, a lead ing cement company which is riding on an ambitious expansion programme. The company has chalked out a plan for jacking up its manufacturing capacity from the current level of 29.7 million tonnes to 50 million tonnes.

The company has started the new fiscal year on a positive note, operating at almost full capacity in Q1 of calendar year 2021 with capacity utilization reaching 96 per cent of capacity.

Now, to enhance capacity to 50 million tonnes, the company has laid out growth plans to emerge as a big player in terms of regions, the company is exploring opportunities in the markets of east and west India with brownfield expansions in the Bhatpara and Maratha plants. While its upcoming facility in Marwar- Mundwa in Rajasthan will enhance clinker capacity by 3 million tonnes, it would help improve cement sales by 5 million tonnes. Apart from this, the company is also looking at significant debottlenecking opportunities across all its plants to further enhance their cement capacity.

Of course, the immediate prospects for the company are not that bullish on account of the pandemic-induced restrictions but the long-term growth trajectory of the company will remain healthy with capacity expansions backed by strong prospects ahead.

CMP Rs 390.60, 52 week H/L Rs 428/197, BV Rs 122.80, FV Rs 02)

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Poonawala FinCorp(BSE Code 524000)

A Pune-based former stock broker and a financial expert advises not to worry about the lower than expected performance of Poonawala FinCorp, formerly which was known as Magma FinCorp and now acquired by th Cyrus Poonawala group, for fiscal 2021. The profit during the last quarter of the year was Rs 64.50 crore, almost 15 per cent lower than the expected level on account of lower NII (net NIMs) and a modest surge in gross NPAs as lock-downs affected collection efficiency. However, the financial expert is highly optimistic about the company, going ahead. As the company is well placed in terms of financial adequacy and liquidity, the new management has planned to diversify the current portfolio by making an effective mix of secured and unsecured products; i.e., affordable housing, pre-owned cars and business loans from current offerings and new offerings like LAP, PL, loans to professionals, etc. He expects that the company, with the Poonawala management now, will see superior profitable growth, resulting in a significant improvement in return ratios.

As the Poonawala management aims to triple the as sets under management (AuM) by fiscal 2025, aided by sufficient liquidity and diversify in product offerings, there will be a surge in disbursements. The company under the new management plans to discontinue the relatively riskier businesses of used CV/CE and tractor financing. Instead it intends to create a significant presence in loans to professionals, PLs, non-affordable housing loans and SME LAP.

The company also plans to introduce consumer durables financing, co-branded credit cards and digital lending products by the end of fiscal 2022. With a professional management taking charge, the expert is optimistic about growth numbers.

Maintaining that stock prices are bound to move up, the expert adds that the change of promoter should significantly improve the company’s borrowing profile which should, in turn, support a rejig of asset mix with the right blend of secured-unsecured loans – derisking the loan book from black swan events.

(CMP Rs 182.00, 52 week H/L Rs 200/31, BV Rs 73.90, FV Rs 02)

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Power Finance Corporation (BSE Code 532810)

Research analysts of an academically sound and analytically strong research wing of a brokerage house favours investment in Power Finance Corporation for short-term as well as medium term. They insist with a long term perspective, the company will have to find out new avenues of growth.

At present the company is doing quite well and during the Q1 FY2022, it has earned a net profit of Rs. 2270 crore, suggesting a 33.8 per cent spurt over the corresponding quarter last year which was driven by improvement in margins (+ 381 bps) and credit costs with a sharp drop from 86 bps in the Q1 FY2021 to 49 bps this quarter. However disbursements remained weak at Rs. 1130 crore mainly due to weak demand across segments.

A good news for the company and its stakeholders is the fact that asset quality trends are improving. Yields are reprised at lower rates from April 2021 to improve competitiveness among lenders. The company is worth buying with a shortterm and medium-term perspective on account of improving asset quality trends and an attractive risk-reward phenomenon.

However, weak disbursements momentum suggests the necessity of new avenues of growth. As any major capex in the thermal power segment are absent, the company needs to find new avenues of growth in order to maintain existing leverage.

(CMP Rs 4766.20, 52 week H/L Rs 5225/1880, BV Rs 407.00, FV Rs 10)

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