Q3 Earnings picks: Commodity, food processing and IT stocks resonate

Gujarat Narmada Valley Fertilizers & Chemicals ltd (GNFC) reported excellent traction in its earnings  (PAT: 241% YoY) aided by 40 percent topline growth, EBITDA margin expansion (+906 bps) and lower interest expense. This was mainly led by Chemicals division (68% of Q3FY18 sales), wherein operating profit trebled to Rs 390 crore.

In the current quarter, there was a temporary blip of seven days due to TDI (Toluene diisocyanate) plant shutdown in Dahej. Earlier reports suggested indefinite plant shutdown due to leakage, however management has intimated exchanges that the plant has started its operations.

Himalaya International (Market cap: Rs 214 crore), the frozen & canned food processing company reported a steady increase in topline numbers and maintained a healthy EBITDA margins. However, net profits surged 274% YoY on account of lower interest cost and other expenses. Sequentially, as well, there was a huge improvement as the Q2FY18 was impacted by floods in Gujarat plant.

Current margin trend suggest company is getting back to the similar margin range as prevailed during 2010-11, which augurs well. Similarly, topline numbers are also reviving and inching towards the hey days in 2013-14. D/E ratio is high at 1.13 but company seems to be working on it now.

With operations in North and West India, company benefits from a trend towards natural and vegetarian products without any use of chemicals.

Lloyds Metals & Energy (Market cap: Rs 437 crore), a Vidarbha region based Sponge Iron manufacturer with about 2,70,000 MT capacity, reported sharp jump in net profits aided by lower raw material cost. Interestingly, Sponge Iron & Steel segment (86 percent of Q3 FY18 sales) continues to report loss at EBIT level, though its losses have trimmed down significantly on account of higher product prices. Readings from the peer company, Tata Sponge, suggest product prices may remain firm in near future but higher cost of coal remains something to watch out for.

Tinplate Company Of India Ltd. (Market cap: Rs 3,030 crore), largest indigenous producer of tin coated and tin free steel sheets in India, reported a surge in topline growth both sequentially and on YoY terms.

Sequentially, however, margins dropped due to higher raw material cost (76% of sales vs 74% in Q2 2018). Elevated prices of raw material, Hot Rolled Coil (HRC) and pick up in the key end markets like edible oils, paints, processed foods are the aspects to monitor for the company.

Sasken Technologies ltd. (Market cap: Rs 1,357 crore), a product engineering and digital transformation company, resonated a sector wide pick up in trend in favour of mid-sized IT companies. Company has an exposure to high growth end markets - semiconductors, communications (smart devices), industrial automation, automotive electronics and in the Q3 result reported a pickup in margin. Company has a set an ambitious goal (5X5 vision) of growing five times in five years.

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