TDP-related stocks take centerstage after ‘Modi stocks’

The Telugu Desam Party (TDP) of Andhra Pradesh has received attention across the country.

People are curious about how this liberal, democratic party has gained prominence and how it’s spilling over its winning impact on select Indian stocks.

If you remember, we wrote to you about ‘Modi stocks’ recently and their stellar show just before the election results.

Now, with the elections done and dusted, two stocks related to the TDP have taken centerstage.

Shares of Heritage Foods and Amara Raja Energy have rallied almost 35% over the last two days following TDP's significant victory in local assembly election.

The party has emerged as a key player in the formation of national government.

Amara Raja's current MD Jay Dev Galla was a former MP from the party.

Heritage Foods’ promoter holding stands at 41.3% as of March 2024 and Nara Bhuvaneswari, wife of Chandrababu Naidu, is a key stakeholder in the company. She holds 24.37% stake.

While the recent electoral success of the Telugu Desam Party has highlighted the political connections of certain companies, this article focuses on these entities' fundamental business attributes and market performance.

Any references to political affiliations are provided for contextual understanding only and should not be viewed as an endorsement of or commentary on political positions.

Our analysis aims to objectively assess the financial health and prospects of the companies mentioned, independent of their political associations.

So let’s look at both these stocks in detail.

#1 Amara Raja Energy & Mobility

The flagship company of the Amara Raja group,Amara Raja Energy & Mobility, is one of the largest manufacturers of lead-acid batteries.

It sells its leading brands, such as Amaron, PowerZone, Amaron Quanta, and Amaron Volt, for automotive and industrial uses.

The company has seven manufacturing plants with a capacity to produce 19 m 4-wheeler batteries, 30 m 2-wheeler batteries, and 2.3 bn ah of industrial batteries.

It has a strong distribution network of 23 branches, 39 distribution points, 500+ Amaron franchisees, 100,000+ points of sale, 1,000+ power zone retail stores and 2000+ extensive service hubs in India. It also exports to over 50 countries.

Some of its customers include Ashok Leyland, Ford, Honda, Hyundai, and Mahindra and Mahindra.

In the last five years, its net sales have grown at a compound annual growth rate (CAGR) of 8.9%.

Diversified revenue streams and established relationships with its clients have helped the battery maker almost double its revenue in the last five years.

To add to this, its wide distribution reach has helped Amara Raja to grow its revenue.

Meanwhile, Amara’s net profit has grown at a CAGR of 7.5% during the same period.

While Amara Raja is debt-free, it is investing ₹95 bn in capex to set up a 16 GW (gigawatt) lithium-ion battery gigafactory, an advanced energy research and innovation centre, and 2GW lithium plants using NMC technology.

It has sufficient cash balance to meet the capex requirements comfortably.

Amara Raja has submitted bids to the government to set up a battery manufacturing gigafactory in India.

The stock price has rallied in the past year amid a rally in battery stocks on optimism over further collaborations with foreign vehicle manufacturers.

Global carmakers, including BYD, are doubling down on the burgeoning electric vehicle market in the South Asian nation as sales cool in China, the US and Europe. This is expected to give local component makers like Amara Raja a long term boost.

#2 Heritage Foods

Heritage Foods is engaged in the business of procurement and processing of milk & milk products and also generation of power through solar & wind for the captive consumption of its dairy plants.

It has a strong market presence across 11 states in India and serves over 15 lakh households.

It’s one of the largest private dairies in South India and has a significant market share in Andhra Pradesh, Telangana, Karnataka, and Tamil Nadu.

After underperforming for the past two years, shares of Heritage Foods have found momentum in this current bull run.

This could be attributed to the performance it has put up in the past few quarters.

In Q4, the company posted Ebitda of ₹700 million, which is 68% YoY growth.

While net profit was up 126% YoY to ₹410 million.

For the year ended March 2024, the company’s Ebitda shot up by 52% to ₹2.1 bn while net profit rose 84% to ₹1.1 bn.

Note that the company has come under focus for its ties to TDP in the recent past.

The former Chief Minister and President of TDP was arrested in the skill development scam. Once this news was out, shares of the company had crashed over 7%.

Nevertheless, the company has bright plans for the future. Apart from adding new value-add products, it’s also focusing on enhancing reach and adding new outlets.

Today, it made a filing to the BSE for another new launch of some products.

The company is actively focusing on expanding its distribution and increasing the number of milk analysers in collection centres.

The management have also highlighted that milk procurement prices have started to come down, while production has also improved across all regions.

Going forward, the company is expecting double digit volume growth, which could directly improve margins.

Are there more stocks with TDP ties?

Apart from the above, a few more companies have registered offices in Andhra Pradesh.

These stocks have moved up ever since Chandrababu Naidu won 16 Lok Sabha seats, and investors hope he will play a critical role in forming the next government.

Andhra Sugars, which has its registered office in Venkatarayapuram, has gained around 10% in the past two days.

Meanwhile, Avanti Feeds and Laurus Labs both have their offices in Vishakhapatnam.

While Avanti Feeds has rallied 11% in 5 days, Laurus Labs has also moved up from ₹389 to ₹439.

Some more smaller companies with their registered offices in the state’s districts include Virat Crane Industries, Nelcast, Andhra Cements and Crane Infrastructure.

In conclusion

The ability of political party members to influence stocks from time to time has been controversial from the start.

There have been many instances in the past where they’ve used their privileged position for gain.

While there is scope for a lot of discussion regarding the legality and ethical aspects of this, what I wanted to let you know is it’s essential for investors to focus on the robustness of company fundamentals rather than external factors such as political affiliations.

As we continue to monitor these stocks, we encourage our readers to base investment decisions on thorough analysis and sound financial principles, ensuring that short-term fluctuations influenced by political developments do not overshadow the long-term potential of their investments.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com