Fdc ltd

FDC could be poised for a decent year ahead, especially next couple of quarters, due to pricing and RM tailwinds. Excerpts from the last concall point are suggestive that the management is looking to take the full extent of the NLEM price hikes.

1. Management points to the fact that Q2 FY 22-23 will see the full impact of the NLEM price increases (10.7% increase) with all old inventories getting used up now. FDC is especially a beneficiary here as >40% of their Indian portfolio fall under the NLEM portfolio. And considering market leadership of brands like Electral, this could be interesting to monitor

2. A second tailwind could be cooling off in RM prices. This should further give a fillip to margins (apart from price increase). FY 22 OPMs were lowest for a decade at ~17%, same consequently with ROCEs (15%). Average OPMs and ROCEs over the last decade are comfortably 20%+ and 20+ respectively. With margin/pricing tailwinds around the corner, could this depict a cycle bottom?

3. Last quarter results were very impressive in terms of sales growth. They delivered topline growth of 10% despite June 2021 being a COVID affected quarter with an abnormally large base This number was significantly higher (>40%) than June 2019, the last normal comparison quarter

4. Small amount of promoter buying going on in the stock, last in June’22. Company is sitting on reserves close to 50% of its market cap. Fundamentally still quoting at just above 2 PB which is low cycle valuations. In terms of sales also looks reasonable at 3x sales. PE not cheap, obviously because of base with very low margins

Technically also looks interesting (I am not an expert in technicals)

1. Could we be looking at a reverse H&S pattern indicating a trend reversal? Closed above a major resistance of 275 and now breaking out into a new range. Above 30 WMA (tilting upwards)

Disclosure: I am invested as a techno funda position and am biased. This is not investment advice and I am still learning technicals. Do your own research before investing