TDP-related stocks steal the spotlight after ‘Modi stocks’

Interest piques over how the Telugu Desam Party (TDP), a liberal democratic party, has surged in influence, impacting specific Indian stocks.

Recall our recent discussion on ‘Modi stocks’ and their remarkable performance just before the election outcome.

Now, following the concluded elections, attention shifts to two stocks tied to the TDP.

Heritage Foods and Amara Raja Energy shares surged nearly 35% in the past two days after the TDP’s significant victory in local assembly elections.

The party has emerged as a key influencer in national government formation.

Notably, Amara Raja’s current MD, Jay Dev Galla, previously served as an MP from the party.

As of March 2024, Heritage Foods’ promoter holds a 41.3% stake, with Nara Bhuvaneswari, Chandrababu Naidu’s wife, being a major shareholder, holding a 24.37% stake.

While the recent electoral triumph of the Telugu Desam Party has brought attention to certain companies’ political ties, this article delves into these entities’ fundamental business attributes and market performance.

Any political references aim to provide context only and should not be construed as an endorsement or commentary on political stances.

Our analysis seeks to impartially evaluate the financial health and prospects of the mentioned companies, regardless of their political affiliations.

Let’s delve into the details of these stocks.

#1 Amara Raja Energy & Mobility

Amara Raja Energy & Mobility, part of the Amara Raja Group, is one of the biggest manufacturers of lead-acid batteries in India. It sells popular brands like Amaron, PowerZone, Amaron Quanta, and Amaron Volt for both vehicles and industrial use.

The company has seven manufacturing plants, producing 19 million 4-wheeler batteries, 30 million 2-wheeler batteries, and 2.3 billion ampere-hours of industrial batteries. Its extensive distribution network includes 23 branches, 39 distribution points, over 500 Amaron franchisees, more than 100,000 points of sale, 1,000+ PowerZone retail stores, and 2,000+ service hubs across India. Additionally, it exports to over 50 countries, with major customers like Ashok Leyland, Ford, Honda, Hyundai, and Mahindra and Mahindra.

Financial Performance

Over the past five years, Amara Raja’s net sales have grown at an annual rate of 8.9%. This growth is due to its diverse revenue streams and strong client relationships, which have nearly doubled its revenue. The company’s wide distribution network has also been a significant factor in its growth. During the same period, its net profit grew at an annual rate of 7.5%.

Amara Raja is debt-free and is investing ₹95 billion in new projects, including a 16 GW lithium-ion battery gigafactory, an advanced energy research center, and two 2 GW lithium plants using NMC technology. It has enough cash to cover these investments. The company has also submitted proposals to the government to build a battery manufacturing gigafactory in India.

In the past year, the stock price has surged, driven by optimism about potential collaborations with foreign vehicle manufacturers. Global carmakers like BYD are increasingly focusing on the electric vehicle market in India as sales slow in China, the US, and Europe. This trend is expected to benefit local component makers like Amara Raja in the long run.

#2 Heritage Foods

Heritage Foods procures and processes milk and dairy products and generates power through solar and wind energy for its dairy plants. It has a strong presence in 11 Indian states, serving over 1.5 million households. As one of the largest private dairies in South India, it holds a significant market share in Andhra Pradesh, Telangana, Karnataka, and Tamil Nadu.

After underperforming for two years, Heritage Foods’ shares have gained momentum in the current market upswing. This improvement is due to the company’s strong performance in recent quarters. In Q4, Heritage Foods reported an EBITDA of ₹700 million, a 68% year-on-year increase, and a net profit of ₹410 million, up 126% year-on-year.

For the fiscal year ending March 2024, the company’s EBITDA surged by 52% to ₹2.1 billion, while net profit rose by 84% to ₹1.1 billion. However, the company faced scrutiny due to its connections with the TDP.

The former Chief Minister and President of TDP faced allegations in a skill development scam, leading to a 7% drop in the company’s shares. Despite this setback, the company has optimistic plans for the future. It aims to introduce new value-added products, expand its reach, and open new outlets.

Recently, it filed for the launch of additional products. The company is actively working on expanding its distribution network and increasing the number of milk analyzers in its collection centers. Management has noted a decrease in milk procurement prices and an improvement in production across all regions. Looking ahead, the company anticipates double-digit volume growth, which could boost margins.

Are there more stocks with ties to the TDP? Besides the mentioned ones, several companies with registered offices in Andhra Pradesh have seen an uptick in their stock prices since Chandrababu Naidu won 16 Lok Sabha seats. Investors hope he will play a significant role in forming the next government.

For instance, Andhra Sugars, based in Venkatarayapuram, has seen a 10% increase in the past two days. Avanti Feeds and Laurus Labs, located in Vishakhapatnam, have also experienced gains. Smaller companies in the state’s districts, such as Virat Crane Industries, Nelcast, Andhra Cements, and Crane Infrastructure, have also seen positive movement.

In conclusion, the influence of political parties on stocks has been a contentious issue. While there’s room for debate on the legality and ethics of such influence, it’s crucial for investors to focus on the strength of company fundamentals rather than external factors like political affiliations.

As we track these stocks, we encourage readers to base investment decisions on thorough analysis and sound financial principles. This ensures that short-term fluctuations influenced by political factors do not overshadow the long-term potential of investments.

Happy Investing!