Sachin Pal Moneycontrol Research
In the last couple of weeks, amid weakness in the midcap space, stellar earnings from some relatively unheard names may have missed investors' attention. The Nifty Midcap and Smallcap indices plunged 15 percent and 23 percent, respectively, this year as against a 4 percent rise in the Nifty.
It is our endeavour to spot companies that should be on the radar of investors. However, investors need to be mindful of volatility in the midcap space and should capitalise on the weakness.
GM Breweries, which manufactures and markets alcoholic beverages such as country liquor and Indian made foreign liquor, reported a 10 percent year-on-year (YoY) growth in topline for Q1 FY19. It reported revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) of Rs 404 crore and Rs 34 crore in Q1, respectively. EBITDA jumped 119 percent as margin expanded on account of soft raw material prices. Prices of extra neutral alcohol/rectified spirit, the key raw material for GM Breweries which constitutes around 10-11 percent of total revenue, declined more than 50 percent YoY.
Profit after tax also came in higher at Rs 22 crore compared to Rs 10 crore in the corresponding quarter of last year. At the current market price of Rs 709 per share, the stock trades at trailing 12-months price-to-earnings multiple of 15 which implies a steep discount to other listed companies in this space.
CCL Products (CCL), India’s largest manufacturer and exporter of instant coffee, reported a consolidated revenue of Rs 294 crore, a growth of 20 percent YoY. Net profit rose 46 percent to Rs 39 crore. Growth in topline was mainly driven by higher volumes but was partially offset by weakness in green coffee prices that declined 15-20 percent. Growth was driven by strong performance from Vietnam operations. Sales from its Vietnam plant jumped 10-12 percent in the quarter gone by, while consolidated operating profit growth was aided by richer product mix.
As India capacity is working at nearly full utilisation, CCL is looking to grow its customer base in Vietnam after commissioning of agglomeration capacity in the region. Vietnam’s capacity of 10,000 MT was running at 70 percent utilisation in FY18 and provides significant scope for revenue and profitability growth. Back home, CCL’s new 5,000 MT freeze-dried coffee plant is being set-up at Chittoor and is expected to commence operations by H2 FY19.
Agricultural Trade Office in Sao Paulo forecasts Brazil’s coffee production for FY19 at 60.2 million 60-kg bags, an increase of 9.3 million bags YoY. The prices of green coffee are expected to remain under pressure as Brazil accounts for 35-40 percent of global coffee supply. Accordingly, the management has given a conservative revenue growth guidance of 0-10 percent for the current fiscal. It expects to garner around Rs 100 crore revenue (versus Rs 46 crore in FY18, around 5 percent of total revenue) from business-to-consumer (B2C) segment in the current fiscal. The company also expects a slight margin improvement over the previous year as CCL works with its customers on a cost plus basis. The management has indicated net profit growth guidance of 10-20 percent in the current financial year, excluding the new plant capacity. The new Chittoor plant is a high margin business and will further aid profitability as volumes pick up.
Amal is engaged in manufacturing and marketing of bulk chemicals such as sulphuric acid and oleum and downstream products such as sulphur dioxide and sulphur trioxide. These bulk chemicals find applications in multiple industries such as dyes, fertilisers, personal care, petrochemical, pharmaceutical and textile. This Gujarat-based chemical company is promoted by the NSE-listed chemical conglomerate Atul and has a manufacturing plant located at Ankleshwar with an installed capacity of 140 MT per day.
The company reported a healthy jump in topline to Rs 9.3 crore. Operating profit more than doubled to Rs 4.6 crore as compared to Rs 2 crore during the first quarter of last year. Expansion in operating margin aided growth in bottomline, which moved higher to Rs 3 crore. Growth in topline and bottomline has been aided by a sharp jump in realisations. Prices of sulphuric acid has increased to Rs 10,000 per tonne from Rs 4,000 per tonne after the shutdown of Vedanta’s copper smelter - Sterlite Copper - in Thoothukudi. Sterlite had a 15 percent share of the sulphuric acid market in India.
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