Stock market analysis and stories by Ketan Sonalkar

Articles by Ketan Sonalkar

TREND | 25 May 2021

Where mutual funds are placing their bets

The monthly portfolio disclosures by mutual funds helps investors get an idea of what the smart money is doing in the market. It gives a peek into the sectors, and companies in particular, that are in vogue or have fallen off the radar of fund managers. As April 2021 is the first month of the financial year, these sectors might outperform during this financial year.

According to portfolio data of mutual funds for April 2020, some of the top bets that mutual funds have made are in steel, cement, specialty chemicals and pharmaceuticals.

Tata Steel – Steely resolve pays off in challenging times

Tata Steel’s stock price saw a decline from March 2018 till March 2020 reaching its lowest point on 30th March 2020. The steel maker’s stock bounced back with a massive move over the next 12 months. The stock gave 4X returns from its lowest point in March 2020 till April 2021. The stock is trading at record highs in May 2021. Most of this up move in Tata Steel’s stock has happened over the past 3-4 months.

The factors behind the stellar performance of Tata Steel includes global demand for steel, which drove exports when domestic demand was muted during April-September 2020. By Q4FY21, domestic demand too picked up across sectors including construction, automotive and capital goods. Revenues in Q4FY21 were the highest recorded in the last 10 quarters. Tata Steel also managed to pare its debt during FY21 and its net debt at the end of March 2021 stood at Rs 29,390 crores. With global and domestic demand expected to grow, Tata Steel continues to be a strong player in the sector.

Kotak Equity Arbitrage, Axis Bluechip Fund, Canara Robeco Emerging Equities, Axis Flexi Cap and ICICI Prudential Balanced Advantage are some of the mutual fund schemes that added Tata Steel to their portfolio in April 2021.

Finolex Industries – Laying the pipelines for the future

Finolex Industries manufactures PVC pipes and fittings which are used across the construction industry, and in the agriculture sector. The company has a strong presence in rural markets. During Q2FY21 and Q3FY21, the company saw significant growth in sales with Q3 delivering the highest revenue and net profit in the last 10 quarters.

Finolex is also expanding its distribution network in all regions in India with higher focus in the northern and eastern regions. Capacity expansion of PVC pipes is also on the cards. The PVC and UPVC pipes and allied product makers are expected to grow going forward on account of traditional GI (galvanised iron) pipes being replaced by PVC and UPVC. This is due to PVC pipes being superior to GI as they are corrosion resistant, much lighter and easier to install, besides being cost effective.

SBI Small Cap Fund, Canara Robeco Consumer Trends, ITI Small Cap Fund andITI Multi Cap Fund are some of the mutual fund schemes that have bought this stock in April 2021.

Glenmark Pharmaceuticals – Value unlocking on the cards

Through FY21, Glenmark Pharma’s stock also saw a rally along with many other pharma stocks. However, over the last three years, it has been a rank underperformer in the pharma sector. The bright spot last year was the demand growth by Favipiravir, which is used in the treatment of Covid19.

Glenmark has recently completed the restructuring of its various businesses. The three distinct entities that would come out of this process are Glenmark Pharmaceuticals, Glenmark Life Sciences (100% API subsidiary) and Ichnos Sciences (100% US based Research and Development (R&D) subsidiary). Each of these entities will operate with separate management teams and board of directors.

In April 2021, Glenmark Life Sciences filed a draft red herring prospectus with the Securities and Exchange Board of India (SEBI) for raising Rs 1,160 crore through a share sale via initial public offering (IPO). The company has planned to use the proceeds towards funding the capital expenditure requirements and general corporate purposes. The consensus amongst analysts is that this IPO would lead to value unlocking for investors.

Kotak Equity Arbitrage, UTI Arbitrage, L&T Arbitrage Opportunities Fund andAxis Arbitrage Fund are some of the mutual fund schemes that have bought this stock in April 2021.

Laurus Labs - Acquisition as the medicine for growth

Listed on the stock exchange in Dec 2016, this pharma company hardly had any price movement for nearly three years till Mar 2020. Since then, this stock delivered more than 5X returns from March 2020 till the end of March 2021.

The company has consistently increased its revenues over the last seven quarters, and ended Q4FY21 with highest quarterly revenues. Laurus Labs recently acquired 72.6% stake in Richcore Lifesciences with an objective to enter the biologics and biotechnology segments, providing the company access to its high growth areas, globally and in India. Richcore, a biotech company based in Bengaluru, with advanced R&D and manufacturing facilities, develops products critical for biological drugs. The management expects revenue to double from Richcore operations in FY22. The company is in the process of acquiring land to increase Richcore’s capacity. The company’s long-term strategy is to build capability, as well as capacity in the synthesis/biologics segment to sustain growth over the next 4-5 years.

Edelweiss Mid Cap Fund, Principal Emerging Bluechip, Principal Focused Multicap and Edelweiss Large & Mid Cap Fund are some of the mutual fund schemes that have bought this stock in April 2021.

Dalmia Bharat – Cementing a strong foundation

Dalmia Bharat is one of the top five cement companies in India in terms of market capitalisation and market share. The last financial year was exceptional for the company on many accounts. Its stock price delivered more than 2.5X returns during FY21, which is way ahead of its peers. After the initial setback of the lockdown during the first quarter, cement demand was strong, and Dalmia Bharat ended Q4FY21 with revenues crossing Rs 10,000 crores for the first time ever. The company also posted its best quarterly profit in the last ten quarters in the March 2021 quarter.

During this year, the company also increased its installed capacity by 16% to 30.75 Million Tonnes Per Annum (MTPA). Given the focus on infrastructure development in India, and growing demand from the construction sector, the cement industry is looking at better days ahead.

DSP Equity & Bond, DSP Flexi Cap Fund, Nippon India Growth and Kotak Equity Opportunities Fund are some of the mutual fund schemes that have bought this stock in April 2021.

Rossari Biotech – Growth catalysts driving the equation

Rossari Biotech, operates in the speciality chemicals space and has three verticals—HPPC (Home, Personal Care and Performance Chemicals) TSC (Textile Speciality Chemicals) and AHN (Animal Health and Nutrition). Its stock price surged in April 2021 after the company announced the commissioning of its greenfield manufacturing unit in Dahej. The greenfield facility will have an additional installed capacity of 132,500 MTPA (Metric Tonnes Per Annum), doubling the total capacity to 252,500 MTPA.

According to the management, this additional capacity would give it the bandwidth to introduce newer products within its different verticals over the next 3-4 years.

SBI Small Cap Fund, SBI Flexicap, UTI Flexi Cap Fund, BOI AXA, and BOI AXA Small Cap Fund are some of the mutual fund schemes that have bought this stock in April 2021.

Tata Elxsi - Futuristic trends and technologies are the drivers of growth

During FY21, Tata Elxsi’s stock was one of the best performers in the IT sector giving more than 4X returns during the financial year. Both revenues as well as net profits have been rising in the past three quarters, with Q4FY21 having the highest revenue, net profit and operating margins in the last ten quarters.

Tata Elxsi works with leading broadcasters & operators to create solutions for smarter living, engaged entertainment and a digital future driven by IoT, analytics and artificial intelligence. It has built differentiated capabilities to support the development and launch of OTT services, and is well poised to benefit from this long-term trend.

Axis Growth Opportunities Fund,Axis Midcap, IDBI Small Cap Fund and BOI AXA Small Cap Fund are some of the mutual fund schemes that have bought this stock in April 2021.

Alkem Laboratories - Healthy growth of market share across products

Alkem is the seventh-largest branded pharma company in India and among the leaders in major therapy areas like anti-infectives, gastrointestinal (GI), vitamins and minerals (VMN), pain management, cardiac and anti-diabetes. During Q3FY21, the company’s revenues growth was ahead of its competitors in the same therapy areas, thereby gaining market share. Most of the company's top brands also outperformed in their representative markets.

The US business is also gaining traction with an 19.8% growth for 9MFY21 due to new product launches. The company received 10 Abbreviated New Drug Application (ANDA) approvals (including 2 tentative approval) from the US FDA in Q3FY21. Alkem is continuing to focus on its products with market leadership giving the impetus for healthy growth in the next few years.

ICICI Pru Value Discovery Fund, ICICI Prudential Business Cycle Fund, ICICI Pru Pharma Healthcare and Diagnostics PHD Fund andTata Arbitrage Fund are some of the mutual fund schemes that have bought this stock in April 2021.

Caplin Point Laboratories Ltd.

10 May 2021, 05:23PM

1860.90

-2.15%

Caplin Point Labs: Being different continues to make a difference

By Ketan Sonalkar

Caplin Point Laboratories is different from most Indian pharmaceutical companies in its choice of a growth path of exports to lesser penetrated and relatively unregulated markets. This is a different strategy from its competitors, which has paid off in the long run.

The company is now a dominant player in the semi-regulated generic markets of Latin America (LatAm) and Africa. It forayed into these geographies in the early 2000s and established a strong and deep network, monetizing its early mover advantage in then untapped markets.

Caplin Point Labs has also worked to keep up with changing circumstances and environments, making strategic decisions that have ultimately added up to the bottomline. These include the conversion of fast selling generics into branded generics for higher profitability. Caplin Point Labs then entered the regulated markets of the US, which now form a small percentage of sales. There are plans afoot to enter Canada, Australia, China and Brazil shortly. The company’s stock was up 7% on the day of the results, showing that investors were reposing their faith in the company.

Quick Takes:

Total revenue of Rs 1084.8 crore for FY21, registered a growth of 20% over FY20 total revenue of Rs 904.5 crore.
Q4 FY21 revenues grew 29.5% year-on-year (YoY) to Rs. 278.7 crore
US sales increased 31% YoY, despite a pandemic situation prohibiting many outpatient services in the US.
There are agreements in place for registration of products in Canada, Australia and Brazil; revenues from these markets are expected to start in the next 18-24 months

The Response to Covid - Converting a stumbling block into opportunities

As with all other industries, the pandemic situation in FY21 affected Caplin Point Labs too. However, the company moved swiftly to make changes in the inventory and supply via online models.

In the US markets, prescription drugs sales dropped, but was more than compensated by online sales and pharmacy driven sales, where Caplin Point Labs had a strong presence. Secondly, the company rationalised a part of its inventory, and moved from non-critical to critical products, focused on the fastest moving products recommended by WHO and was able to ensure supply to customers.

The management evaluated an opportunity for contract manufacturing of Covid19 vaccine but is not keen on pursuing it. According to the management, vaccine manufacture comes under the spectrum of biologicals, while Caplin Point Labs is a pharmaceutical company. This would need remodelling of their plants, impairing production, and will consequently take time. Management decided not to address this opportunity at this point of time and instead focus on the company’s existing plans.

Consistently increasing revenues in last four quarters

Caplin Point Labs has seen a YoY revenue growth of 27.2% to Rs 288.2 crore in Q4 FY21. The firm was able to cross a revenue of Rs 1000 crore for the first time in a financial year with total revenues of Rs 1,084.8 crore.

Despite being in a challenging year, the company was able to supply to Latin American markets from India or China, where it also has operations, depending on the availability and better pricing of the raw material. Online sales with Quentenx in US markets generated a sales of $9,85,000 in Q4 FY21. Emergency orders from Brazil and Mexico, where operations are yet to begin, helped generate revenue from newer markets in response to pandemic dependent emergency supplies.

Newer markets and opportunities – Emergency approvals give a boost

Caplin Point Labs is planning to enter newer markets in LatAm, and is looking at Bolivia, Peru, Chile and Columbia. The company expects to replicate its business model based on its experience in other LatAm countries.

According to the management, the bigger opportunity in LatAm lies in Brazil and Mexico, where they have registered for business but currently are only supplying emergency orders. With this, the company will move from smaller geographies to larger ones in LatAm.

Major growth in LatAm is expected from Mexico. Apart from emergency supplies, further expansion plans in these countries would be evaluated by the company as soon as the Covid19 curve flattens. In Brazil, the company is pretty optimistic about the approval process coming down from four years initially, to much lower in the near future.

The other new markets that the company plans to enter are Canada and Australia. Partners for these countries have been finalised and revenue contribution from these geographies can be expected in the next 18-24 months.

The US opportunity is crucial in the next few years

Caplin Point Labs is already present in the US, with revenue contribution of 8% in Q4 FY21. The growth plans in the US are going to be driven through its subsidiary, Caplin Steriles. The company has a 75% stake in its US subsidiary, Caplin Steriles and the rest (25%) is held by other investors.

According to the company’s estimates, the market size of products that are approved or under approval is $670 million, while they are looking at a market size of around $3 billion over the next 5 years, counting approved products and products in the pipeline. As on date, 20 ANDAs (Abbreviated New Drug Application) have been filed and 15 ANDAs have already been approved. In the next four years, there are around 40 more ANDAs in the pipeline that will come onstream.

The strategy for US business is to move from simple molecules to complex ones that would lead to high value products. The Research & Development team has expanded from 107 members in 2017 to more than 300 at present count.

However, there are a couple of challenges in the US business. The capacity utilisation of the US business at present stands at 40% to 45%. The company expects to ramp this up once approvals for ANDAs come through, and expects to utilise unused capacity to launch the products. Regulatory compliance also poses a big hurdle in the US.

Backward integration with an eye on US expansion

Current expansion plans include investments for API (Active Pharmaceutical Ingredient) plants. According to the management, this was a conscious decision based on a few factors. Firstly, there was a need to reduce the dependency on China for APIs and for ease of regulatory compliance.

For US business, approvals can sometimes be a challenge if raw material is outsourced. To mitigate this the company has chosen a backward integration approach where they would have control over the whole process of manufacturing, right from the raw material (APIs) to the finished product.

Capex plans – another two years for impact

While the company has outlined a capex plan of 300 crore, this would take at least two years to fructify - being spent primarily on three projects.

Oncology plant - commitment of Rs 160-165 crore
API plant - commitment of Rs 70-100 crore
Expansions and maintenance at current plants - commitment of Rs 30-35 crore

Current Status:

Oncology plant – Acquired a ready building. Design and engineering stage has been completed. Estimated to be ready in a year.
API plant - This would be a greenfield project. The land for the same has been acquired. It would take about two years for the plant to get fully operational.
Expansions at the current plants are on track and these would take another fifteen months for completion. (Rs 30-35 crore)

Caplin Point’s CAGR for the last 10 years for Revenue, EBITDA, PBT and PAT is above 28%. This is a good number for any company, particularly in the pharma industry. If we take a look at the returns of the stock for the last 5 years, Caplin Point Labs has been a multibagger and fared better than most of the other stocks from this sector. The other stock that has outperformed the industry is Divis Laboratories.

With revenues crossing Rs 1,000 crore in FY21, the plans in place for expansion in new markets, growing market share in the US and the company delivering in FY21 despite challenges faced by the pandemic, FY22 will be interesting to see in terms of the growth trajectory.

Caplin Point Laborat.. has an average target of 2400.00 from 1 broker.

Ambuja Cements Ltd.

06 May 2021

527.45

0.58%

Ambuja Cements: Cost control boosts realisations

By Ketan Sonalkar

Lafarge Holcim’s second Indian unit, Ambuja Cements, saw a challenging calendar year 2020. The company, along with the industry, suffered due to the stoppage of construction activity in the Covid-19 pandemic and subsequent lockdowns last year which impacted production as well as sales in Q2 CY20. Surprisingly, in the next few quarters sales picked up due to strong demand …

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The cement sector’s prospects are rising on higher budgetary allocation by the government on infrastructure and lower interest rates. There is also an expectation of recovery in private capex, which would continue to support strong cement demand. Ambuja Cements’ product portfolio includes high-strength and high performance Portland Pozzolana Cement (PPC), Ordinary Portland Cement (OPC) and Blended cement, across various grades. Special products, a high margin segment, contributed 12% to the sales volume this quarter.

The measures Ambuja Cements took over the past few quarters to adapt to life under the pandemic seems to have borne fruit with optimised costs resulting in higher realisations per tonne in Q1 CY21.

Quick Takes

Revenue stood at Rs 7,812 crores, rising 22.2% on a YoY basis, while net profit rose nearly 71% YoY to Rs 947.2 crores.
Operating profit grew 54.3% on a YoY basis, with the company posting the highest operating profit in the past 10 quarters of Rs 1,838.5 crores
Efficiency of production continues this quarter with more than 96% capacity utilisation
Increased penetration of premium/special cement with higher margins has been driving growth for the company

Growing revenues with consistently growing demand

Sales volumes grew by 25.6% for the quarter with sales growth across geographies. This was further helped by realisations per tonne rising to Rs 4,945 in Q1 CY21 compared to Rs 4,792 for Q1 CY20, at 3.2% rise on a YoY basis.

The management of Ambuja Cements said that there are strong and continuing headwinds due to prices of inputs like coal, petcoke, and diesel. The company has made some progress on improving its internal efficiencies. This will help it limit any spike in costs.

Growth from India in the last quarter was strong, and helped push up the sales volume for Ambuja Cements. The company’s special products business (created jointly with LafargeHolcim), also contributed to its revenue growth.

Better operational efficiency and improved realisations

Ambuja Cements employed various measures to control costs over the past few quarters. It has implemented a new system to track production and plant maintenance in real time. Maintenance is conducted using predictive models, to minimise maintenance costs, and reduce the machinery’s down time. This means the machines are available for production longer, which leads to higher volumes that can help defray costs over a larger base. These measures have helped boost its capacity utilisation to 96%.

Similarly, a new system implemented to manage its logistics needs has helped Ambuja Cements transform its supply chain. It uses the manufacturing location that allows it to minimise the cost of distribution to end customers. This way, the cost of servicing any order is minimised. All of this resulted in a net reduction of 5% on account of better production control, logistics and distribution.

Capacity expansion through new plants and acquisitions

Ambuja Cements has a stated objective to reach a production capacity of 50 MTPA (million tonnes per annum) from the current capacity of 29.65 MTPA. In terms of regions, the company is exploring opportunities in markets of east and west India, with brownfield expansions in Bhatpara and Maratha plants. Apart from this, the company is also looking at significant debottlenecking opportunities across all its plants to further enhance their cement capacity. With current capacity utilisation above 90%, further capacity addition is a part of the strategy to gain market share across regions and subsequently improve market share.

The company has been in the process of constructing a greenfield integrated plant at Marwar Munda, Nagaur, Rajastahan. This plant would have 3 MTPA clinker units and an 1.8 MTPA cement unit. The planning and approval for this plant was done in 2018. As per the original plans, it was supposed to be operational towards the end of year 2020. However the Covid-19 situation in year 2020 slowed down the construction and as per management, the plant is now expected to commence production in Q3 CY21. This would add incremental sales subsequently.

Shrinking market share due to capacity constraints

Although India is among the leading producers of cement in the world, its per capita cement consumption, at 200-250 kg, is the lowest among developing countries. The world average is 500-580 kg, with per capita consumption higher in countries such as Vietnam (800-850 kg) and Turkey (700-750 kg). The factors that could trigger cement sales are infrastructure demand, especially for government projects, as well as higher housing demand in rural and semi-urban areas. Ambuja Cements ranks second in India in terms of market share in the cement sector.

This sector is dominated by 5 companies which account for more than 50% of the market share. Of these 5, Ambuja Cements (6.2%) and ACC (6.0%), both are a part of the LafargeHolcim group and together account for approx 12% of the share in the industry.

As per available data, the market share of Ambuja Cements has fallen from 8.6% in 2018 to 6.2% in 2020. While the gap between the leader Ultratech Cement (21.4%)and Ambuja Cements (6.2%) is large, this can reduce once they commission newer plants to increase sales volume and subsequently market share.

At the time of release of the Q2 CY21 results, we are again facing the ferocity of the second wave of Covid-19. There is limited construction activity with major lockdown-like conditions across the country. In the near term, while the demand for cement is strong, construction activity is slowing down and we need to watch the next quarter results closely to gauge the impact. However, in the long term, Ambuja Cements seems poised to benefit from its initiatives on operational efficiency and capacity expansion.

Ambuja Cements Ltd. has an average target of 675.11 from 9 brokers.

ACC Ltd.

23 Apr 2021

1811.60

0.14%

ACC - A cement sector underperformer catches up with peers

By Ketan Sonalkar

ACC is the fifth largest cement company in India in terms of market capitalization. While it is among the oldest companies in this space, it lags behind its peers on many metrics.

However, initiatives taken to ramp up capacity and optimise costs reflect in this quarter’s results. This is the first cement company to declare results for the quarter, and the numbers indicate that it is on the road to recovery. ACC had one of the lowest quarterly revenues in Q2 CY20 (April-June 2020), which was adversely impacted due to the Covid19-related national lockdown. The company has subsequently posted higher revenues sequentially for the past three quarters. In Q1 CY21, the company posted its highest revenue in the last 10 quarters.

Quick Takes

Net profit rose 74.2% YoY in Q1 CY21 to Rs 562.6 crore vs Rs 324.0 crore a year ago.
Cement sales volumes are up by 21.6% on a YoY basis but the readymix concrete volumes are down by 10.9% in Q1 CY21.
The earnings before interest, tax, depreciation and amortisation (EBITDA) margin grew by 290 basis points (bps) which stood at 20% this quarter as against 17.1% in the same quarter last year.
ACC commissioned a large new grinding unit at Sindri in record time, adding a capacity of 1.4 MTPA.

ACC’s Q1 CY21 results point to a recovery

The YoY revenues has grown at 21.9% to Rs 4,336 crores this quarter as against Rs 3,557 crores quarter a year ago. Last year, Q2 CY21 was in the middle of a national lockdown due to the pandemic, and obviously this impacted revenues. However, the revenue numbers for the subsequent quarters show a sustained improvement, with each subsequent quarter reporting higher revenues compared to the previous one. This quarter has been the quarter with the highest ever revenues in the last 10 quarters.

Cost optimisation helped deliver better margins and profits

Under the project “Parvat”, ACC undertook numerous initiatives to improve efficiency and reduce costs where possible. The project also focuses on sustainability and reducing its carbon footprint. The company was able to save on freight and forwarding costs by direct dispatches, warehouse footprint optimization and procurement. The other contributor towards revenues is the Master Service Agreement (MSA) with Ambuja Cements.

Supply chain transformation to help operations

ACC and Ambuja Cements, the two Indian units of LafargeHolcim, have chosen Blue Yonder, a global end-to-end, digital supply chain platform provider, for their supply chain transformation.

With improved supply chain optimization, ACC can potentially align its service locations with lowest costs, reduce delivery costs and create a better service network.

Two new plants will add to ACC’s capacity

ACC has also commissioned a new 1.4 MTPA (million tonne per annum) unit at its Sindri cement grinding plant in Jharkhand. The commissioning was completed in Q1 CY21 and is one of the fastest commissioned plants in the company's history. This unit now has a total grinding capacity of 4.4 MTPA. The company began work on capacity expansion in December 2019 in order to strengthen its presence in the Eastern region. The expansion was done with the aim to contribute to servicing the growing market, strengthen its presence in the eastern region and to add value to the business. The facility will manufacture low-CO2 and environment-friendly cement products.

In February 2021, ACC announced the groundbreaking ceremony of its greenfield project of 2.7 MTPA integrated cement plant, with 1 MTPA cement grinding unit at Ametha in Kymore, Madhya Pradesh. This plant will be commissioned in Q2 CY22.

Can ACC catch up with its peers?

The past year has been good for cement companies with the stock prices of some companies giving more than 2X returns (Dalmia Bharat delivered more than 150% in FY21). ACC has however, been an underperformer. The results for Q1 CY21 quarter seem to indicate that ACC is on its way to catch up with its peers. The planned capacity expansion, cost optimization initiatives and digital strategy to manage logistics will help the company to keep pace with its peers.

The only grey area is the pending cartelisation case brought by the Competition Commission of India, which is pending before the National Company Law Appellate Tribunal. As to whether it does outperform its peers, the next few quarters will show investors whether ACC can achieve that goal.

KRChoksey upgraded ACC Ltd. to Buy with a price target of 2152.0 on 05 May, 2025.

Mutual Funds News

TREND | 20 Apr 2021

Where is the smart money going?: Following mutual fund flows in March 2021

By Ketan Sonalkar

Tracking the monthly mutual fund shareholding data gives investors an insight into how fund managers view the economy, and prospects of the companies in question. The change in shareholding can indicate sectors that are gaining traction, or policy changes have triggered interest in specific industries.

The March 2021 data released by mutual funds shows that fund managers have placed their faith in recent performers, increased stakes in companies that are in the process of a turnaround, and in a smallcap company.

Dixon Technologies continues to be a favourite of MFs

Dixon Technologies has been in the news for the right reasons. This stock has been among the top performing stocks of FY21, returning 4X returns over that period. The company is into contract manufacturing of electronic items and has a portfolio spanning consumer electronics, lighting solutions, mobile phones and security surveillance systems.

With MNC electronic companies focusing on shifting manufacturing to India, this is one firm that looks poised to take on that challenge. The company is also looking to take advantage of the Govt policies under the “PLI” scheme. The last quarter Q3FY21 has shown stellar growth in revenues with QoQ change at 33.2% and YoY change at 119.25%

PGIM India Midcap Opportunities Fund, PGIM India Flexi Cap Fund, Motilal Oswal Midcap 100 ETF and Motilal Oswal Nifty Midcap 150 Index Fund are some of the mutual funds that have bought shares in the month of March 2021.

Granules India is undertaking major capacity expansion

Granules India is engaged in the manufacture of active pharmaceutical ingredients (APIs), pharmaceutical formulation intermediates ( PFIs) and finished dosages (FDs).The company has 50% of its revenue from the US market, While the Indian market contributes around 15%. In Q3FY21, FD grew at 11%, PFI at 48% and APIs at 20% in YoY terms, showing a healthy growth across product categories. The company has received 2 ANDA (generic drugs) approvals from USFDA this quarter. A major expansion is being undertaken for a PFI and FD facility at Genome Valley, Hyderabad where land was acquired in Q4. For this project, the expected capex is around Rs 400 crore and the unit is expected to be operational in early FY24.

Kotak Equity Arbitrage Fund, UTI Arbitrage Fund, L&T Arbitrage Opportunities Fund, Edelweiss Arbitrage Fund are some of the mutual funds that have bought shares in the month of March 2021.

Deepak Fertilisers is best among peers

Deepak Fertilisers & Petrochemicals Corporation has seen consistent growth in its revenues over the past 3 quarters of FY21 despite a very challenging environment due to Covid-19. Revenues from Q3FY21 were at Rs 1,456.2 crore, the highest in the last eight quarters. Another standout feature in the numbers for this quarter has been the yearly revenue and net profit growth. The company has invested in increasing capacity across its plants over the past three years. These could not be fully utilised due to the pandemic situation last year, but going forward, the company is ready to ramp up production based on the demand for particular products.

Quant Active Fund was the major buyer of Deepak Fertilisers’ shares during March 2021.

One MF buys Stylam Industries across various schemes

Stylam Industries is a small cap company that has seen the highest buying by mutual funds. It is also interesting to note that only one asset management company has bought its shares through its various schemes. Stylam company has a consistently higher percentage of exports to domestic sales.

What helped maintain the topline during the first three quarters of FY21 was exports being double of domestic sales. In Q3FY21, the domestic sales were Rs 40 crore and exports stood at Rs 84 crore. Stylam Industries is a pioneer in India for acrylic solid surfaces, having set up a manufacturing plant for the same.his is also expected to contribute significantly to the bottomline.

Quant ESG Equity Fund, Quant Tax Plan, Quant Consumption Fund and Quant Mid Cap Fundare the schemes from Quant AMC that have added the most number of shares to their portfolio. This is now the top holding in two of the above mentioned funds.

MFs buying Jindal Steel and Power as it outperforms peers

The past year has been good for most of the steel companies and Jindal Steel and power is no exception in the list. During FY21, the stock price surged 4X and has outperformed its peers.

During FY21, JSPL achieved its highest ever production in plates, TMTs, wire rods and billets. The revenue and net profit for Q3FY21 was the highest in the last 10 quarters. The company also has reduced its debt to Rs 25,000 crore compared to Rs 36,000 crore at the start of the year, a reduction of Rs 11,000 crore. With no major capex planned and a strategy for debt reduction in place, this company is potentially emerging as one of the outperformers in its industry.

Nippon India Arbitrage Fund, DSP Equity Opportunities Fund, Tata Mid Cap Growth Fund and Mirae Asset Mid Cap Fund are some of the mutual funds schemes that have bought the JSPL’s shares in March 2021.

SBI Cards and Payments rides high on rising digital payments

A subsidiary of State Bank of India (SBI), is the second largest credit card issuer in India. After the Covid-19 pandemic struck India last year, use of credit cards for online payments has been rising. In the case of SBI Cards, 50% of existing and new users added during Q4 are from tier 2 and tier 3 cities, which are under-penetrated markets for credit cards.

The growth for 9MFY21 in online spend came from categories like department stores, consumer durables, and even apparel and jewellery. Currently, spending has reduced across categories like hotels, airlines, entertainment due to the second wave of Covid-19 as most states have curfews and travel restrictions. Malls and cinema halls are also shut. As and when these are open to business, these categories would be big contributors to the company bottom line.

Nippon India Focused Fund, SBI Flexi Cap Fund, Aditya BSL Frontline Equity Fund, and DSP Tax Saver Fund are some of the mutual funds schemes that have bought shares in the month of March 2021.

Varroc Engineering: This automotive lighting firm is on funds’ radar

This company makes automotive components and has a strong global footprint, and is a dominant player in the domestic space as well. It is one of the world leaders in automotive exterior lighting systems. A notable aspect is that it has doubled in share value in the past one year despite belonging to a sector that was severely impacted due to the lockdown.

The Q3FY21 results point to an increase in revenue which is among the best in the last 10 quarters, a positive sign in a challenging environment. The company during the last quarterly result indicated that capex done over the past few years would help generate free cash flows going forward. Any incremental capex would be towards upgrading or for capacity addition at existing plants only. The focus would be on reducing debt as well. The net effect of these is expected to lead to greater profitability in the forthcoming quarters.

HDFC Flexi Cap Fund, Nippon India Multi Cap Fund, Nippon India Large Cap Fund and Nippon India Focused Equity Fund are some of the mutual funds that have bought shares in the month of March 2021.

Astral Poly Technik is the turnaround king MFs love

Astral Poly Technik has shown resilience in times of the pandemic and delivered a stellar set of numbers in Q3FY21. From its lowest revenue in Q1FY21 to its highest ever revenue for a quarter in Q3FY21, it has been a quick turnaround. The company got its act together, responding to the pandemic situation such that the growth in revenues were also accompanied by the highest operating margin and net profit during Q3.

The company has been focusing on expansion and new products. The expansion of the plant in Bhubaneswar, Orissa will come on stream in Q2FY22, and should contribute to revenues by Q3FY22. Another expansion is the valve manufacturing facility at the Dhokla plant. Similar expansion plans for other locations are underway. Another significant event is the acquisition of a plastic tank company from Shree Prabhu Petrochemicals Pvt Ltd (SPPL) which is expected to contribute a healthy margin to the company.

Axis Growth Opportunities Fund, PGIM India Large Cap Fund, Principal Balanced Advantage Fund, and Nippon India Nifty Midcap 150 Index Fund are some of the mutual fund schemes that have bought shares in the month of March 2021.

Mutual Funds News

TREND | 08 Apr 2021

Not all mutual fund managers delivered alpha in FY21

By Ketan Sonalkar

When the pandemic led to lockdowns across India, the stock markets were jolted at the end of FY20. So much so that March 2020 saw the largest fall of the benchmark indices in Indian stock markets.

A year later, at the end of March 2021, the picture was a complete contrast. During this period, the Nifty rose from 8,597 at the end of FY20 March 31, 2020) to 14,690 at the end of FY21 (March 31, 2021.) That is a return of 71% over 12 months.

We decided to look at the mutual funds’ performance in FY21 across various categories, by filtering those with assets under management of above Rs 1,000 crore.

To make this analysis more relevant, we compared the returns of mutual funds across various categories with their respective benchmark’s total return index.

Quick takes:

Among large cap funds only two schemes managed to outperform the benchmark. Franklin India Bluechip Fund (managed by Anand Radhakrishnan, Roshi Jain and Mayank Bukrediwala) has been the top performer outperforming the benchmark by 5.81% followed by SBI Bluechip Fund(managed by Sohini Andani) outperforming the benchmark by 2.90%
In the midcap category, only one scheme outperformed the benchmark. The only scheme is SBI Magnum Midcap Fund (managed by Sohini Andani). This fund outperformed the benchmark by 3.41%
The three top performers in the equity-linked savings scheme (ELSS) category outperformed the benchmark. IDFC Tax Advantage Fund (managed by Daylynn Pinto) by 24.91%, Mirae Asset Tax Saver Fund (managed by Neelesh Surana) by 11.40% and Franklin India Taxshield Fund (managed by Lakshmikanth Reddy and R Janakiraman) by 3.32%
In the small cap category, there was only one scheme that outperformed its benchmark. Kotak Small Cap Fund (managed by Pankaj Tibrewal) by 0.32%
In the value category, all but one scheme managed to outperform their benchmark index. These are IDFC Sterling Value Fund (managed by Anoop Bhaskar and Daylynn Pinto) by 41.32%, L&T India Value Fund (managed by Venugopal Manghat, Alok Ranjan and Vihang Naik) by 9.83% and Aditya Birla Sun Life Pure Value Fund (managed by Milind Bafna) by 8.47%
In the focused category, three top performing schemes outperformed their benchmark. Nippon India Focused Equity Fund (managed by Vinay Sharma and Kinjal Desai) by 23.62%, Mirae Asset Focused Fund (managed by Gaurav Misra) by 12.25%, and Franklin India Focused Equity Fund (managed by Anand Radhakrishnan, Roshi Jain and Mayank Bukrediwala) by 4.65%

Across all the selected categories, four fund houses have more than one fund amongst the top performers in FY21

Franklin India AMC - three funds with two of them managed by the same team (Anand Radhakrishnan, Roshi Jain and Mayank Bukrediwala)
Mirae Asset AMC - two funds (managed individually by Neelesh Surana and Gaurav Misra)
SBI AMC - two funds (both managed by Sohini Andani)
IDFC AMC - two funds (both managed by Daylynn Pinto)

The other standout performance has been by Kotak Small Cap Fund, managed by Pankaj Tibrewal, which has given the highest return across categories.

Now let us take a deeper dive into these various categories and their performance over FY21.

Large cap category: Limited funds close to the benchmark or exceed it

Under the large cap category, the benchmark index is the Nifty 100 Total Return Index (TRI). The Nifty TRI gave a return of 71.18% over FY21. Only two schemes in this category beat the said benchmark, while three other schemes’ performance was very close to the benchmark’s return. There are a total 34 schemes in this category.

The top performer, Franklin India Bluechip Fund, surprisingly has delivered the highest returns despite having a heavy weightage on the financial sector and lesser exposure to the IT and Pharma sectors, which delivered maximum returns in FY21.

Midcap category: One star outperformer but high returns as a category

The benchmark index of this category, the Nifty Midcap 100 TRI, gave a return of a whopping 102.44% in FY21. Only one scheme has been able to outperform the Nifty Midcap 100 TRI during the last 12 months, while 17 schemes have delivered returns of over 80% in the same period.

SBI Magnum Midcap Fund was the top performing scheme in this category. The scheme’s outperformance was helped by Godrej Properties (2X returns), PI Industries (2X returns), JK Cements (3X returns) and Ramco Cements (2X returns).

ELSS category: Lock-in period helps to lock in performance too

By their very nature, ELSS schemes have a lock- in period of three years. This helps schemes in the category avoid redemption pressures. The fund managers of these schemes have more flexibility and can hold some stocks for longer duration. This is reflected in the performance as more funds in this category have outperformed their benchmark compared to other equity funds. The benchmark index for this category is the Nifty 200 TRI, which gave a return of 74.61% in FY21.

Out of a total 41 schemes in this category, 11 outperformed their benchmark in FY21. IDFC Tax Advantage Fund was the best performing scheme in this category. Its outperformance came from some stocks that gave more than 100% return in FY21. Some of these stocks are Tata Motors (4X returns), Deepak Nitrite (4X returns), State Bank of India (2X returns) and NCC (4X returns).

Small cap category: Raising the benchmark to the next level

The small cap category is one that has been amongst the best performing categories in the past financial year. The benchmark for this category (Nifty Smallcap 100 TRI) has literally raised the “benchmark” for the rest of the pack, with a massive 127.45% return in FY21. While only one scheme has managed to outperform this benchmark, the lowest return is also more than 80% creating ample wealth for investors.

Kotak Small Cap Fund is the only fund that has outperformed the benchmark. The returns of this fund have come from some of the stocks which have multiplied in value over 3 times in the same time frame, namely, Dixon Technologies (5X returns), Persistent Systems (4X returns), Century Plyboards (3X returns), APL Apollo Tubes (5X returns), among many others.

The other surprise performer has been Aditya Birla Sun Life Small Cap Fund which was amongst the most underperforming funds over the previous three years and has emerged amongst the top three funds in this year.

Value category: Creating value across the board

The benchmark for this category is also the Nifty 200 TRI, which gave a return of 74.61% in FY21.This category stands out for the reason that, even amongst the worst performing schemes, except for one, the rest of the category posted returns above the benchmark.

IDFC Sterling Value Fund, the top performing value fund in FY21, delivered category beating returns, despite it not having large allocation to IT and pharma sectors. Notable contributors to its outperformance Deepak Nitrite and KEC, both of which saw a 3X returns in FY21.

Focused category: The top performers have definitely not lost their focus

Though this category has a limited number of funds, the top 3 funds in this category have outperformed the benchmark. The benchmark index–Nifty 200 TRI–gave a return of 74.61% in FY21.

Only 13 funds have an AUM of more than 1000 Crores and within such a small set, a total of five funds have outperformed the benchmark.

Nippon India Focused Equity Fund, the top performer, draws its returns based on the financial sector and a few other stocks from its portfolio like Ashok Leyland and Honeywell Automation that gave returns exceeding 100% in FY21.

Although some of the returns look very high, it needs to be noted that many of these funds were down by 30% to 50% in March 2020. The beginning of FY21 was almost the lowest point for these schemes. It will be interesting to see where these schemes end up in the return pecking order at the end of FY22.

Mutual Funds News

TREND | 25 Mar 2021

Recent stock market picks by mutual funds

By Ketan Sonalkar

With volatile markets, most investors are looking for opportunities and levels at which they can buy certain stocks to add to their portfolio, essentially timing the market. The shareholding data of mutual funds allows us to analyse what fund managers see as the most promising investments.

Although investors should not follow these moves blindly, it makes for interesting reading to analyse why mutual funds increased their holding in certain stocks. If there is a consistent increase in holdings over a few months, it can be assumed that at least one major section of the market is viewing the developments in those stocks positively. Investors can also identify any developments in individual stocks which are likely to increase buying from market participants.

We have run a filter through this screener to check which mutual funds are consistently increasing their holding.

IRCTC:

Last month, Indian Railways allowed IRCTC to resume its e-catering services which were shut down since the onset of the Covid19 pandemic. This is significant as until now, the railways have been serving only ready-to-eat meals on trains. IRCTC had started this service in the year 2014 whereby passengers could order an array of food of their choice from reputed brands, as well as popular regional and local delicacies on phone or online while travelling on trains. These were delivered to their seats at the railway station.

During the pre-COVID period, IRCTC started clocking 20,000 e-catering orders per day. The return of one of the primary revenue generating streams for IRCTC has seen mutual funds increase their stake in the company.

Motilal Oswal Midcap 30, Tata Equity P/E Fund, HDFC Growth Opportunities and Canara Robeco Emerging Equities are some of the mutual fund schemes that added most number of shares of IRCTC from December 2020 to February 2021.

Godrej Industries:

The holding company of the Godrej Group has seen some of its subsidiaries show positive growth in the December 2020 quarter versus the last year. The Godrej Group consists of Godrej Industries and its subsidiaries—Godrej Agrovet, Godrej Chemicals, Godrej Consumer Products, Godrej Housing Finance and Godrej Properties.

Godrej Properties saw a growth of 25% in the booking value and booking volume growth of 51%. The chemicals business also saw a rise in revenues by 16% on a YoY basis. While the animal feed business, housed under Godrej Agrovet, contributed the most to Godrej Industries’ consolidated revenues, the highest contribution to its profitability was by Godrej Properties.

Nippon India Nifty Midcap 150 Index Fund, Motilal Oswal Nifty Midcap 150 Index Fund and Motilal Oswal Midcap 100 ETF were the three mutual fund schemes that added the highest number of Godrej Industries shares during from December 2020 to February 2021.

Jindal Steel & Power:

This company’s December 2020 results delivered the highest revenue and net profits in the last 8 quarters. A decision taken at the start of lockdown in 2020 has paid off, and then some. The company did not reduce production and instead kept its plants running at 80% capacity. And instead of looking for domestic opportunities, it focused on exports. The quantity of steel exported jumped exponentially, contributing to the growth in its top line. The company reported a consolidated net profit of Rs 2,432.20 crores for the quarter ending December 2020, mainly on account of increased revenues. During the same quarter a year ago, it had recorded a net loss of Rs 257.36 crore.

Aditya Birla Pure Value Fund, Nippon India Tax Saver and HDFC Mid-Cap Opportunities Fund are the mutual fund schemes that added the most number of shares of Jindal Steel & Power from December 2020 to February 2021.

Torrent Power:

Torrent Power has shown significant improvement across a number of metrics in Q3FY21. Profit before tax rose nearly 27% on a YoY basis to Rs 399 crore. There was a tax write back in the previous year during the same period, hence that gave a boost to the profit after tax, or net profit.

Economic revival in the post lockdown period has resulted in an increase in demand for electricity in Torrent’s distribution areas. Demand in Q3FY21 has reached close to levels comparable to the quarter ended December 2019 in all the distribution areas. The other major reasons for improvement in profitability can be attributed to improvement in efficiency of collections in the distribution business, and increase in the contribution from renewable energy due to addition of capacity in the preceding months. Torrent Power has also emerged as the highest bidder in the privatisation of the power distribution company in the Union Territory of Dadra and Nagar Haveli and Daman and Diu for 51 per cent privatisation of the power distribution company (discom), strengthening its distribution network.

Axis Focussed 25 Fund, Axis Long Term Equity Fund, SBI Focussed Equity Fund were some of the mutual fund schemes that added the most number of shares of Torrent Power from December 2020 to February 2021.

Steel Authority of India (SAIL):

While the metal sector is showing an uptrend across the board, the Q3FY21 numbers have been a surprise for SAIL investors. For years the company was looked upon as a beleaguered PSU due to government apathy. Now, it seems to be on the verge of a turnaround.

The revenue for Q3FY21 is the highest recorded in the past eight quarters. When seen from a trailing twelve month (TTM) perspective, it recorded the highest revenue, operating profit and profit before tax compared to the previous five years. What seems to have aided the last few quarters’ performance is that during the lockdown, export almost doubled. And in the subsequent unlock period, the demand recovery was faster than anticipated.

Nippon India Growth Fund, Aditya Birla Sun Life Small Cap Fund and L&T Arbitrage Opportunities Fund are some of the mutual fund schemes that added the most number of shares of SAIL from December 2020 to February 2021.

Fortis Healthcare:

The development which seems to draw interest from market participants in Fortis Healthcare is the expected closure of legal and quasi legal matters related to the company. The recent quarter numbers are nothing to write home about with the net profit still in the red. The Malaysian firm IHH had acquired a controlling stake of 31% in the company in Feb 2018. This triggered a mandatory open offer for another 26% from the open market. This offer has not proceeded further due to legal issues. Once the legal matters are resolved, (expected soon) it could pave the way for controlling ownership, restructuring and expansion going forward.

Nippon India Pharma Fund, Nippon India Tax Saver Fund, Aditya Birla Small Cap Fund and Tata India Pharma & Healthcare Fund added the highest number of shares of Fortis Healthcare among mutual funds.

Mphasis:

Mphasis is one of the IT services companies still seeing interest from stakeholders despite having a stellar run, with its share price rising by almost 100% in the last one year. There are a couple of factors at play here. One being very consistent growth in revenues and profits, with the last quarter being the highest in the last eight years. When seen on a TTM basis, there has been healthy growth in revenues, operating profits and profit after tax in the last 5 years. The last few months have also seen the company win many million dollar deals. The size of these deals has been almost double on a YOY basis. Additionally, the tenure of these deals is also higher than the regular deals that company bagged in the past, which gives investors visibility in long-term revenue growth.

Mirae Asset Emerging Bluechip, ICICi Prudential Large & Mid Cap Fund, Mirae Asset Midcap Fund and PGIM India Midcap Opportunities Fund saw the highest addition of Mphasis’ shares by mutual funds from December 2020 to February 2021.

Polycab India:

Polycab India has the distinction of being the third largest company in terms of market capitalisation in the cables and wires as well as the fast moving electrical goods (FMEG) space, despite getting listed only in April 2019. Another key highlight is that for the previous FY it had the highest net profit growth in YoY terms in FMEG sector. This makes it stand out against its peers like Havells India and V-Guard Industries.

The company has evolved from being a pure cable maker to a behemoth straddling the cables and wires space. The company saw revenue growth across different verticals in the last quarter. The wire and cables business grew on account of exports and demand for optic fibre. The FMEG vertical is one of the major drivers of revenue. This segment saw good growth from products like fans and luminaires, and is expected to give further traction to the company’s growth.

Nippon India Multi Cap, Kotak Taxsaver, Kotak ESG Opportunities Fund and Tata Flexicap were some of the mutual fund schemes that added the highest quantity of shares of Polycab India during February 2021.

Titan Company:

The recent quarter results were very strong for this company. The December 2020 quarter revenue was highest in the last 10 quarters. So was the operating profit as well as the profit after tax. This is seen as a huge recovery for the company which was severely affected in the first two quarters of FY21 on account of the Covid-19 lockdown and subsequent unlock phases. Other factors seen to be working positively in its favour include the reduction of custom duty on gold imports from 12.5% to 10.75%. E-commerce has also been a big driver in the recovery with an absolute growth of 30% during the last quarter.

Nippon India Arbitrage Fund, ICICI Prudential Balanced Advantage Fund and ICICI Prudential Equity Arbitrage Fund saw the highest addition of Titan’s shares by mutual funds from December 2020 to February 2021.