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Market expert Prakash Diwan recommended Philips Carbon Black, Subros, Ion Exchange, Heidelberg Cement and SRF as his top picks for the year 2020.
Philips Carbon Black
It has terrible 18 months and because of that, it is available at almost half of what it used to be. It is one of the leaders in that segment and it is a very niche play. Carbon black is not something that everybody can make and the best part is that they have recently enhanced capacities up to almost 32,000 MTPA for the speciality carbon black and that margin profile is significant.
The company is the market leaders in passenger vehicle air conditioning solutions. But what I think is changing for this company’s profile is they started looking at de-risking themselves and some time back started getting into home ACs. This year has been a bit tepid because of the kind of seasonality but this company’s business on the home ACs is still to find its feet. It is just about 9-10 percent contribution, but as soon as capacity utilisation goes up, the improvement in margins and topline contribution will start going up.
The three segments that it caters to is engineering, chemicals and consumers. Zero B, which is its consumer brand, does not contribute much. It is the engineering division that is led to the stupendous growth and it continues to see some very positive traction in terms of order flow, execution. While they do have a significant share coming from government and municipalities, we have seen another player suffering because of that. The other company was largely dependent on the maintenance contracts, whereas this is more execution driven and more technology-driven. The company has a backend manufacturing facility which is world-class. So, they have got their act together.
I was looking at some of the cement plays which are not as big as the ACC, Ambuja and UltraTech as the volatility and the pricing does become a bit of a constraint there. However, the smaller ones, is where there is enough promise in case things turnaround quickly. Cement has been a sector that has let you down. Protracted monsoon, economic slowdown, not much of housing spends and all, but that is exactly why it is available where it is and that is where the value is. Heidelberg has been able to manage very good realisations, in spite, of all these negatives.
It has significantly run-up in the last few months. It has been a performer. The reason why it is undergoing a re-rating is this entire space. While it does attract a lot of premium, SRF deserves to have a little bit of more premium as the kind of growth numbers that it talks about.
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