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Result analysis: 2 unpopular sectors that are standing tall against the odds🔝

This week we analyze Q4FY22 results and discuss which sectors are standing tall against all the odds followed by curated good reads for investors.

1. Sectors that are standing tall against the odds🔝

“In the midst of chaos, there’s also an opportunity”

Amidst the turmoil & mean reversion happening, one must not forget that Result season is going on🙌. After analyzing, the Q4FY22 & FY22 results announced by all the companies (till date), we here discuss 2 unpopular sectors which are standing tall against all the odds. 

A. Fertilizer industry

India is one of the largest importers of fertilizers in the world (imports over 25% of urea, 95% of phosphates & 100% of potash). And currently, the industry globally is struggling from soaring fertilizer prices because of :

  • High raw material costs such as crude, natural gas & ammonia as a result of supply chain disruptions from the Russia-Ukraine war
  • China’s export restrictions
  • Robust demand all over the world

In spite of higher input costs & higher demand, the Indian government has instructed the fertilizer producing companies to sell their products to farmers at lower prices itself. And the difference between the market price and the lower selling price will be compensated by the government to the companies in the form of subsidies.  

Note: Subsidy element in complex fertilizers such as Potash, Phosphorous & Nitrogen is fixed so companies with higher exposure to complex fertilizers will have to charge higher to farmers. 

So, currently, the subsidies from the government are paid on time and this is the reason companies have seen robust revenue growth & sustained margins in FY22 even during difficult times! 

But why should you care now?🧐

…Because looking at the deadly combination of global shortages, robust demand & higher prices; the majority of the Indian companies are planning expansion. The incremental Capex will help India to become self-sufficient (especially in urea) in the few years. 

Also a few days ago, The Jordan Phosphate Mines Company (JPMC), signed agreements worth $1.5Bn with Indian companies for the import of fertilizer and this indicates the stability of fertilizer supplies to meet the domestic demand. 

Not just this, one other noteworthy trend which we can see in the above table is that the industry is getting deleveraged! All these factors do indicate good upcoming opportunities in the sector.

B. Forgings Industry

Automotive Forgings is another sector that is shining in spite of all the issues✨ (high freight, raw material cost, etc.). Let’s screen the table below & find a good investment opportunity here. 

The healthy order book in all the companies is majorly driven by:

(i) High demand EV 

       Source: Sona Comstar Q4FY22 concall

(ii) Revival of the domestic commercial vehicle industry 

Source: Bharat Forge Q4FY22 concall

(iii) Good export demand 

(iv) Demand coming from Railway and Oil & Gas sectors

Source: Ramakrishna Forgings Q4FY22 concall

Amongst all, other sectors which are performing very well & can be looked into to generate ideas are:

  • Paper (JK Paper, Century textiles, TamilNadu newsprint & papers Ltd). We already covered Paper gains are real & not just “on paper” this time! a few weeks back. You can read our detailed write-up here
  • Plywood (Greenpanel industries & Century Plywood)
  • Soda Ash industry (Tata chemicals & GHCL)
  • Oil & Power sector (IOCL, BPCL, MRPL, CPCL)
  • Flourochem industry (Gujarat Flourochem & Navine Fluorine)
  • Capital goods (Hindustan Aeronautics, Thermax, Elecon engineering, etc.)
  • Mining sector (Vedanta, Sandur manganese, GMDC, etc.) 
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2. What else is trendin’?🤙🏻

✔️ India’s forex reserves declined by $2.67Bn to $593.28Bn. This was on account of drop in value of foreign currency assets (Indian currency’s depreciation) which is the major portion of overall reserves.

For perspective: India imported $750Bn worth of goods and services compared to total exports of $670Bn. This leaves us with $87Bn of foreign trade deficit and from this it is clear that maintaining foreign reserves as a cushion is very crucial.

✔️UPI is ruling the payment space! Now we don’t need ATM card to withdraw cash from ATM machine. This service was already provided by many banks such as HDHC bank, and ICICI bank but it was not interoperable but now after this regulation, the process will become very efficient.

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3. Good reads 📚

3.1 A write-up on “Wise words from Peter Bernstein” 

3.2 An article on How the Principles of Stoicism Can Help Your Personal and Financial Life

3.3 Bear market survival guide by Ben Carlson

See you next week. Until then, happy investing!

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