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Old 13th June 2017, 11:59   #46
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Default Re: Guide: Investing in shares of the automotive sector

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Although my first car was bought on a car loan, I have never taken one since then. All my cars (and even real estate) have been purchased from sale proceeds of stocks.
THIS. THIS. A million times this.

This is motivation. This is inspiration. This is what I'm aiming for, and honestly everyone should strive for.

Sir, I've been invested in the markets, mainly MFs, ever since I started working in 2008. Long term, to build a direct stock portfolio that can primarily fund even RE purchases is the aim I have, and this thread goes a very long way in increasing my knowledge levels from a direct stock perspective.

I'm good with MFs, and have a decent portfolio, and this is the next step in that long term journey. Thanks a lot for this. Please keep creating similar threads.
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Old 13th June 2017, 15:11   #47
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Default Re: Guide: Investing in shares of the automotive sector

Hi, what a thread. Very recently i started investing in direct equity, all this while i used to do the same via Mutual Funds.

I have a concern on this investing period. The stock market in general is towards its peak, does it make sense to wait for some correction and then start looking for stocks? Or has the market not really peaked yet?
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Old 13th June 2017, 15:32   #48
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Default Re: Guide: Investing in shares of the automotive sector

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I have a concern on this investing period. The stock market in general is towards its peak, does it make sense to wait for some correction and then start looking for stocks? Or has the market not really peaked yet?
First make an assumption that market has not peaked yet and invest right away. Then make a backup plan in case your original assumption was wrong. This is how you go about it -

1) First make a rough calculation of average monthly expenses, based on your history over the past 12 months.

2) If your 'take home' income is Rs. 1 Lakh per month and your average monthly expenses are Rs. 60,000 per month, then you have Rs. 40,000 per month to invest.

3) Put Rs. 20,000 per month in a fixed deposit (or debt mutual fund)

4) Invest the remaining Rs. 20,000 per month in stocks or mutual funds.

Heads you win, tails you don't "lose" much. If the market goes up, great! If the market corrects, you can even break your FD or sell debt MFs to fund more stock purchases.

Last edited by smartcat : 13th June 2017 at 15:35.
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Old 13th June 2017, 22:46   #49
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Default Re: Guide: Investing in shares of the automotive sector

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On this thread, I would like to introduce you to the world of investing in stock markets in general, but automobile stocks in particular. A few important points:
Excellent thread, smartcat.

Very lucidly written and a nice read.

Rated it 5 stars and have also subscribed!

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Old 14th June 2017, 18:28   #50
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Default Re: Guide: Investing in shares of the automotive sector

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As car enthusiasts, we have an unique insight into the automobile sector companies when compared to others.
I was thinking of doing the same for the past couple of months and decided against entering stocks as I have sufficient exposure to the markets via mutual funds. But there was always a need to understand the industry better as I have been a core mech engineer at an auto company for the past 8 years. Your post came in at the right time and I now have a demat account in place.

My focus will be solely on auto ancillaries and my goal is probably be on the look out for a company like MSSL. A small time company which has delivered excellent products for the industry and great returns for the share holders. I plan to buy stocks worth 1000 INR / months for the next 12 months.In this aspect, I started to look into the many auto ancillary stocks and this is where I hit the brick wall.

And almost every stock(Minda, lumax, jamna auto, nrb bearing, talbros) is now currently trading at its peak. For some strange reason a 3-5 fold increase in stock price has happened for the past 2 -3 years starting sometime in 2014. As an insider, the past 2-3 years have been anything but exciting. Market is still under recovery post demon. But the stocks seem to sing a different tune altogether.

Can anyone throw some light into what has created this scenario?

One last thought: For anyone looking to enter the market like me, this does not seem to be a good time. Everything seems to be at an all time high. I might settle for 1 stock in the 1k range just to have a presence.
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Old 14th June 2017, 19:14   #51
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Default Re: Guide: Investing in shares of the automotive sector

This is a great thread @smartcat. Justifying your handle

One rather crude way to distinguish whether a particular stock is cheap or expensive (even when it is at PE 30 or PE 10) is to compare with category average PE. Of course its just a crude indication and may not give the full picture but it does give some information which can be used to make a decision. So, for example, Maruti PE is around 30 while the category PE is 27. So Maruti is just slightly overpriced (and justifiably so as it is a bluechip and such companies trade at a premium).

In the smallcap ancillary space one can look at a small company called SNL Bearings. It is a small company with fantastic set of numbers. ROE is around 40%+, negligible debt. Interestingly it currently trades at PE of 16 while the category average is 36! So right now it is available at a great discount compared to its peers. There is a possibility that it might get rerated if they keep delivering good results. I think the risk reward ratio here probably favors the investor. But people should put in more research in the company before committing their hard earned money. For disclosure, I've just invested a token amount (100 shares) in the company sometime back, just for tracking.
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Old 14th June 2017, 20:34   #52
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Default Re: Guide: Investing in shares of the automotive sector

Smartcat, your acumen is most appreciated and the analysis too excellent . thank you for
this initiative " Guide: Investing in shares of the automotive sector." will be watching this tread keenly.
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Old 15th June 2017, 00:45   #53
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Default Re: Guide: Investing in shares of the automotive sector

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For some strange reason a 3-5 fold increase in stock price has happened for the past 2 -3 years starting sometime in 2014. As an insider, the past 2-3 years have been anything but exciting. Market is still under recovery post demon. But the stocks seem to sing a different tune altogether. Can anyone throw some light into what has created this scenario?
The entire smallcap index has gone up 3x since Jul 2013. That's why you will find many stocks that have gone up up 3 to 5x. Reason for sudden upsurge is both domestic and foreign funds entering the midcap and smallcap space. This happens whenever investors don't find enough value in large companies.

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In the smallcap ancillary space one can look at a small company called SNL Bearings. It is a small company with fantastic set of numbers. ROE is around 40%+, negligible debt.
Took a quick look and the numbers look good. They were profitable every single year in the past 10 years, which is a significant achievement for a tiny company. They have even raised the dividend from Rs. 2 per share in FY16 to Rs. 3 per share in FY17. But 16 times earnings is quite expensive for such a small company. For companies this small, I refrain from paying more than 10x earnings. And no, I don't look at 'sector PE' because an entire sector can get overvalued at times.

My Recommendation: You can hold on, but don't buy more unless earnings shoots up or there is a price correction. Watch the results closely every quarter. Read the FY17 annual report when it comes out, especially the 'Management Discussion & Analysis' section.

Last edited by smartcat : 15th June 2017 at 01:03.
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Old 15th June 2017, 10:45   #54
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Default Re: Guide: Investing in shares of the automotive sector

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This happens whenever investors don't find enough value in large companies.
Ok. Makes sense. So basically, the market is driven by the institutional investors and we are just pawns in thier hands.


I choose to pick a single stock with endurance technologies today @~900 INR. This will be my first stock buy and its all thanks to this thread.

I was not able to do a deep dive tech analysis. Recently listed, they have been in business since 1999. They have a presence in India and Europe. They were featured in the cover of a autocar pro, which I think augurs well for a future growth. They are into alum die casting, with a established 2 wheeler presence and want to venture more into the 4 wheeler space.
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Old 15th June 2017, 11:01   #55
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Default Re: Guide: Investing in shares of the automotive sector

How about a Bangalore BHPians meet to discuss and learn more about personal finance, investment, auto stocks, bull and bear from smartcat if he is willing to?

Last edited by Latheesh : 15th June 2017 at 11:06.
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Old 15th June 2017, 12:52   #56
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Default Re: Guide: Investing in shares of the automotive sector

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Took a quick look and the numbers look good. They were profitable every single year in the past 10 years, which is a significant achievement for a tiny company. They have even raised the dividend from Rs. 2 per share in FY16 to Rs. 3 per share in FY17. But 16 times earnings is quite expensive for such a small company. For companies this small, I refrain from paying more than 10x earnings. And no, I don't look at 'sector PE' because an entire sector can get overvalued at times.

My Recommendation: You can hold on, but don't buy more unless earnings shoots up or there is a price correction. Watch the results closely every quarter. Read the FY17 annual report when it comes out, especially the 'Management Discussion & Analysis' section.
Yes, you are absolutely right there. They are expensive looking from historical price. SNL Bearnings already has been a multi-bagger in the last 3 years (gone up from around 50 rupees to 300 now!) I did not put any serious money in it (I bought just 100 shares at 230 around 3-4 months back and it has appreciated by 30% since!) This company can be on radar based on its financial history. If there is a serious correction in the market (and usually the small caps and mid caps bear the brunt of it the most) and if it falls 50-60% then at around 140-150 rupees it should make for an attractive buy, given that it would be available at PE 7-8 only. Also in time, if they keep up the good work, it should catch up with category average. The parent organization of SNL, NRB Bearnings, also trades on our bourses and is available at PE 24 right now. It is also a small cap (Mcap just around 1300cr) but if you see its numbers, it has DE>1, not so remarkable ROE at 16% and not much revenue growth. But still it quotes at 50% premium to SNL! And has tons of institutional investors as well. Maybe there is more to SNL that we do not know which is why it is not as expensive as NRB despite being better fundamentally.
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Old 18th June 2017, 18:52   #57
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Default Re: Guide: Investing in shares of the automotive sector

I entered stock markets very recently with GMR (now sold), HUDCO and Reliance Power in my beginner portfolio.

I want to expand it further by entering into automotive space. Many have recommended Mahindra, Tata motors, Hero etc. Maruti looks tempting but too expensive @ 7200+ per share as of today.

Should I enter into Maruti with this expensive price, any possible price correction soon? I will be able to buy only few units of Maruti at this price. Is Maruti a kind of share which can be bought and forgotten? Just like someone gave the example of how 1 lac worth of Maruti shares in 2004 is now valued at 13 lacs!

I am planning to hold my current portfolio till Diwali and review then whether to stay invested or exit and make fresh investments.

Also investment experts, please advise if one should touch their contingency savings for stock market investments? or breaking FDs to invest in equity?

My current investment pattern is over 70% in FDs/Debt, rest 30% in stocks/Mutual funds.

Last edited by bluevolt : 18th June 2017 at 18:53.
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Old 18th June 2017, 20:06   #58
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Default Re: Guide: Investing in shares of the automotive sector

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Originally Posted by bluevolt View Post
I entered stock markets very recently with GMR (now sold), HUDCO and Reliance Power in my beginner portfolio.
...

I am planning to hold my current portfolio till Diwali and review then whether to stay invested or exit and make fresh investments.

Also investment experts, please advise if one should touch their contingency savings for stock market investments? or breaking FDs to invest in equity?
Not an expert, but, the only guy set to gain if you do too much dilly dally in stocks is your broker. Find a good company, enter with a small amount, put in more as you see the management deliver. If they don't or the story goes south cut your investments and move on.

Don't enter with the mindset of churning the portfolio every few months. That way you will 'look' for reasons to sell/buy which may not be entirely right.
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Old 19th June 2017, 11:33   #59
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Default Re: Guide: Investing in shares of the automotive sector

Very good thread with good overview as well as in-depth knowledge provided. Have rated it a well deserved 5*.

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Although my first car was bought on a car loan, I have never taken one since then. All my cars (and even real estate) have been purchased from sale proceeds of stocks.
+ 100 to this. You are truly a role model for investors !

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RESOURCES:

- Company website
- Investor section (for annual report & investor presentation) of company website
- www.screener.in
- www.valueresearchonline.com
- www.marketsmojo.com
- www.trendlyne.com (for brokerage reports)
I would also like to add Investopedia which is a good knowledge base on concepts of the stocks market. There are very well explained there with suitable examples.
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Old 19th June 2017, 11:40   #60
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Default Re: Guide: Investing in shares of the automotive sector

BMW India grows 8 per cent in 2017, to invest Rs 125 crore
http://economictimes.indiatimes.com/...campaign=cppst

BMW grew 14% in year 2016 and 8% so far in first 5 months of 2017. Remember that you can participate in BMW/Mercedes growth in India via Force Motors stock.

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Originally Posted by sukarsan View Post
I choose to pick a single stock with endurance technologies today @~900 INR.
PROS:

+ Good financials all around. Good growth, manageable debt and 22% Return on Equity.
+ Diversified product mix. Makes engine blocks, suspension components, transmission and brake systems
+ Focus on exports. Fiat Chrysler is one of the biggest customers.

CONS

- Poor dividend payout ratio (5 or 6% of profits). Trading at 40 PE, which is quite high.
- Bajaj Auto constitutes 40% of their revenues. If Bajaj Auto sees a slowdown, Endurance is likely to take a hit too.
- Recently listed. Could not find its annual report.

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How about a Bangalore BHPians meet to discuss and learn more about personal finance, investment, auto stocks, bull and bear from smartcat if he is willing to?
Meeting at Wonder La on a roller coaster would be quite appropriate

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Originally Posted by joslicx View Post
The parent organization of SNL, NRB Bearnings, also trades on our bourses and is available at PE 24 right now. It is also a small cap (Mcap just around 1300cr) but if you see its numbers, it has DE>1, not so remarkable ROE at 16% and not much revenue growth. But still it quotes at 50% premium to SNL! And has tons of institutional investors as well. Maybe there is more to SNL that we do not know which is why it is not as expensive as NRB despite being better fundamentally.
Just took a quick look. Usually, it is better to go with the parent company. The financials of NRB Bearings look pretty decent. Debt to equity ratio of 1 is not too bad. Look at interest costs and compare it with operating profits.

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Should I enter into Maruti with this expensive price, any possible price correction soon? I will be able to buy only few units of Maruti at this price. Is Maruti a kind of share which can be bought and forgotten?
You should never 'invest and forget' a stock investment. Just check the sales/profits number every quarter. It is a 10 minute job. And also check the 'Indian car sales & analysis' thread on Team-BHP to get an idea about how Maruti is doing.

Quote:
Also investment experts, please advise if one should touch their contingency savings for stock market investments? or breaking FDs to invest in equity?
My current investment pattern is over 70% in FDs/Debt, rest 30% in stocks/Mutual funds.
That's a conservative mix. Instead of breaking FDs, use your future savings to invest in equities. That is, if your FD/equity mix is 75:25, then invest in equities during that month. If your portfolio shoots up and your FD/equity mix is 65:35, then invest your savings in Fixed deposit during that particular month.

If you need funds for an emergency, pull out funds from either FD or equities depending on the current mix (compared to your desirable mix of 70:30)

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Originally Posted by Dry Ice View Post
Find a good company, enter with a small amount, put in more as you see the management deliver. If they don't or the story goes south cut your investments and move on.
Good advice, but give the company management some room. Don't exit a stock just because it's profits fell 20% in a year. It could bounce back in form the next year.

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Originally Posted by sahibrain View Post
I would also like to add Investopedia which is a good knowledge base on concepts of the stocks market. There are very well explained there with suitable examples.
Everything is in $, but Investopedia is still one of the best resources to learn stock market investing. Zerodha Varsity is good too
https://zerodha.com/varsity/

Last edited by smartcat : 19th June 2017 at 11:45.
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