Page 35 - DIY Investor Magazine | Issue 38

In its most recent financial results, the company saw a 50% uplift in its year-on-year profit numbers during the last quarter. Significantly, the firm saw growth across the segments it operates in, although more than three-quarters of revenue comes from its jewellery business.
It’s plausible that this was driven by a desire for ‘real’ assets as inflation rises. However, Titan has seen its revenue rise every year, bar one, for the past two decades, with a compound annual growth rate of close to 20%.
The most recent quarterly growth may be more pronounced but it fits with the broader trend we’ve seen drive the company’s success, namely a growing demand for discretionary consumer goods in India, where the average annual salary is now close to $5,000.
IT SEEMS WISER TO FOCUS ON FINDING GOOD COMPANIES THAT CAN PERFORM WELL IN A DOWNTURN, RATHER THAN TRYING TO DETERMINE EXACTLY WHEN THAT DOWNTURN MIGHT HIT
Avalon Technologies, another AIE top 10 holding, represents a similar growth story but with a different customer base.
The company was founded in 1999 and manufactures components for a variety of industries, including the clean energy and communications sectors.
The company held its IPO in April and saw a 30% uplift to revenue in its most recent results but a near doubling in operating income, as the increase in sales was not offset by a commensurate increase in costs.
Unlike Titan, which is benefitting more from the growing wealth of Indians, Avalon’s success seems more driven by the move away from manufacturing in China.
For example, Apple want to shift 25% of global iPhone production to India by 2025.
Samsung also announced in February that it will invest over $200m to build a new refrigeration manufacturing facility in India, adding to the mobile phone facilities it already has in the country.
Is it plausible something will derail these trends and harm Avalon’s prospects? Perhaps. But for now the company, along with other AIE holdings, is still producing strong cash flows and
earnings growth.
And the trust’s decision to invest in the firm was based on those types of factors, as opposed to what external forces may or may not impact it. Given that AIE delivered annualised share price total returns of over 14%, in GBP terms, since its IPO in July 2018 through to the end of May 2023, it’s probably fair to say that – at least so far – it’s a strategy that’s held up well.
As is probably clear from this article, predicting whether or not that will continue isn’t easy to do. But as the spectre of an economic downturn looms in the distance, it seems wiser to focus on finding good companies that can perform well in a downturn, rather than trying to determine exactly when that downturn might hit.
See the latest research on AIE here >
Disclaimer
Disclosure – Non-Independent Marketing Communication This is a non-independent marketing communication commissioned by Ashoka India Equity.
The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
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Aug 2023
DIY Investor Magazine ·