The third quarter of the financial year 2013 has generally been very weak. The common problem has been the demand slowdown and the pressure on margins due to inflation and competition. In most of the cases results have been below expectations. On the positive side, these challenging times are the best times to re-structure your portfolio. One gets to accumulate high quality ideas at low valuations, (often) due to temporary problems. The important thing is to maintain liquidity and discipline.
Starting off with the good results:
The company has posted a 37% growth in the topline from 164 Cr to 225 Cr and 75% growth in the net profits from 18.50 Cr to 32.57 Cr. The results are remarkable as the growth in profits has persisted despite higher taxation. Usually 4th quarter is the best quarter for the company, hence the company may be able to repeat similar performance in Q4FY13 too. We feel investors can continue to hold and try to buy on sharp declines, if any.
Poly Medicure: Finally the forex problems seem to be coming to an end and the real operational brilliance has started showing up. The key thing to look here is the major improvement in operating margins over the years (one would need to remove the forex losses). Such company’s can give steady compounding over a longer period.
MPS Ltd: The company has surprised everyone once again by declaring very good set of results and declaring another interim dividend of Rs 5 per share. The total dividend declared for FY13 till now is Rs 10 with still a scope for the final dividend. At CMP of 128, it is still offering a very good dividend yield with possibilities of further positive surprises.
Astral Poly: The company has decent results. Though they may look below expectations but we think the profitability is lower due to higher advertising costs. Advertising initiatives should help the company grow further over a longer period.
Others: Lumax Auto has also posted decent results in comparison to its peers despite a slowdown in the auto-sector. Caplin Point has posted steady results and the half-yearly balance sheet looks pretty strong with the increasing advance from customers resulting onto cash on balance sheet. If one takes a 2-3 year view, the company may do well. Avanti Feeds results seem decent and the stock seems undervalued at current levels.
GRP Ltd: The company has come out with a poor set of results. The top-line has not grown (in-fact has declined from the September quarter) and the net profits have fallen sharply. The bad performance seems to be due to the weak demand in the tyre industry from Europe and problems due to the high energy cost. Looking at the weak global economies, this may continue for a couple of quarters. The key monitor-able should be the demand in the tyre industry. As and when it improves the company should be able to come out of its problems.
Oriental Carbon: The company has reported results below the general expectation and the problem is again due to the very slow demand in the tyre industry in Europe. Company’s new plant has not got the approvals and new capacity remains unutilized. Once the demand comes back, the company should be able to do well.
Smruthi Organics: The topline has been almost flat but profitability has fallen off. It seems the expected expansion hasn’t started. Once it starts, the company may start doing well.
We believe that the bad is still not as bad as it appears. The company’s have done well in past and were bought at a good value and thus provided some margin of safety. Also, this is the reason why we prefer to have a bit diversified portfolio in the mid/small cap space.
Here is a snapshot of key valuation parameters of the above companies vs the broader markets.
The markets had recently crossed the 20,000 mark and we are looking forward to an investor friendly budget.