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Old 8th June 2017, 11:08   #1
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Default Guide: Investing in shares of the automotive sector

As car enthusiasts, we have an unique insight into the automobile sector companies when compared to others. Eg: We know how Maruti is killing the competition. We know that Bajaj is innovating & expanding into higher CC segment with the launch of Dominar, and it could change its fortunes. We knew before everybody else that Royal Enfield Bullet has become a lifestyle vehicle. Just look at the popularity of 'Indian Car Sales & Analysis' Thread or other threads in the 'Indian Car Scene' sub-forum. There is a way to harness this knowledge and actually make money - by investing in stocks of car makers, two/three wheeler makers and auto component makers.

So yeah, while a car is a depreciating asset, shares in automobile companies are appreciating assets. Personally, I have been investing in the stock markets since the year 2000. 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.

Guide: Investing in shares of the automotive sector-stocks.jpg

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:

- You don't need to have MBA Finance degree or CA degree to invest in stocks.
- Making money in stocks involves just two factors -> application of logic/knowledge (20%) and psychology (80%).

PSYCHOLOGY & STOCK MARKET INVESTING -

Remember that investing in stocks is not too different from investing in real estate. When one invests in apartment, this is what we do -

1) Find the right location. Will there be a Metro subway coming up soon? Is there a smelly drainage close by? Ocean view? How far from airport/mall/schools?
2) Check how much rent one can get. Is there an oversupply or shortage of apartments in that location?
3) How good is management of real estate company building the apartment? Have they delivered on time?
4) Is the apartment reasonably priced? Rs. 4,000 per sq ft apartment might be a great deal. But Rs. 1,000 per sq ft apartment (far away from city center) might be a bad deal.

Extending the above logic to stocks:

1) Find the right sector & stock. Which car company is doing well (Eg: Maruti) and which company is struggling (Eg: Tata Motors)?
2) How much dividends can we get by investing in a stock?
3) How good is management of the car company? Have they made the right strategic decisions? (Eg: M&M Vs Tata Motors)
4) Is the stock reasonably priced? Remember that Rs. 4,000 stock might be "cheaper" than Rs. 400 stock.

WHAT IF STOCK MARKET CRASHES?

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The biggest problem with the stock market is that price of the investment changes every day. But the market price of a stock should not bother you much AFTER you made the investment. Let's take the real estate analogy again - Let's say you have bought an apartment for Rs. 40 Lakhs. Let's assume that you have put it on sale on eBay.

Day 1: You got a bid for Rs. 40.2 Lakhs
Day 2: You got a bid for Rs. 38 Lakhs
Day 3: You got a bid for Rs. 41 Lakhs
Day 4: You got a bid for Rs. 48 Lakhs
Day 5: You got a bid for Rs. 20 Lakhs

Here's the deal: just because you got a bid for Rs. 48 Lakhs on Day 4, it does NOT mean you have become RICH. Just because you got a bid for Rs. 20 Lakhs on Day 5, it does not mean you have "lost" Rs. 20 Lakhs. You don't go to a local real estate broker everyday and ask what is the market price of the apartment you just bought. Ditto with the stock markets - it does not mean anything is Maruti stock falls 50%. After you invest in an automobile stock, just ignore the market price. Because the market price changes everyday depending on bids for stock on that particular day. It does not mean you have 'earned' or 'lost' money - unless you sell.

WHEN TO SELL:

Easy. After you buy an apartment for long term investment, when do you sell? After 3 months? 3 years? Or when you need the money for some reason?

GLOSSARY:

There are some simple terms you need to understand before picking up an automobile stock. Note to experienced investors: I have simplified many of these parameters so that it's easy to understand.

Market Capitalization: Marketcap is 'size' or 'value' of the company. Stocks with high market cap are safer for investment than stocks with small market cap. However, good stocks with small marketcap is likely to give better returns over time.

PE Ratio: Roughly marketcap dividend by net profits. This is a measure of how cheap a stock is. Maruti has a PE ratio of 30 while Tata Motors has PE ratio of 20 implies Tata Motors stock is cheaper to buy than Maruti.

Debt To Equity Ratio: Let's say Bajaj Auto is setting up a new factory for Rs. 1,000 Cr. It has taken a bank loan of Rs. 250 crores while it is investing Rs. 750 crores from its own pocket. In this case, the debt to equity ratio of this project is 0.25 (250 divided by 1000). Good companies have low debt to equity ratios.

Return on Equity: Let's say Maruti has setup a new factory for Rs. 1,000 cr, entirely out of their pocket (no bank loans). This factory earned a profit of Rs. 200 crores in the first year. That means the return on equity was 20%. Good companies have high RoE's.

Dividend Payout Ratio: Let's say M&M earned Rs. 1,000 cr in profits. They paid out Rs. 200 crores as dividend to shareholders. The dividend payout ratio of M&M works out to be 20%. Good companies pay out significant percentage of their profits as dividends to shareholders. Remember that when it comes to accounting, everything can be faked (Eg: Satyam). But dividends paid out is REAL MONEY, and can never be faked.

Dividend Yield: It's like Rental Yield of an apartment. If you invest Rs. 1 Cr in an apartment and you get Rs. 3 Lakhs as rent per annum, then the rental yield is 3%. Similarly, if you invest Rs. 1 Lakh in a stock and you get Rs. 3,000 per year as dividend , then the dividend yield of the stock is 3%

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)

Last edited by smartcat : 8th June 2017 at 23:42.
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Old 8th June 2017, 14:34   #2
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HOW TO ANALYZE A STOCK - MARUTI SUZUKI CASE STUDY

Step 1: Go to www.screener.in and type in Maruti Suzuki.

Guide: Investing in shares of the automotive sector-maruti1.jpg
  • The current price of Maruti stock is Rs. 7205. This number alone has "no meaning".
  • But the PE ratio is 30, which gives you an idea that it is an expensive stock. Generally, large companies should be bought when its PE ratio is below 20 (with caveats, more on this later).
  • Dividend yield of 0.49% is low, which again points to the fact that Maruti stock is expensive. Rs. 100,000 invested in Maruti stock gives you only Rs. 490 as dividend.
  • Debt to Equity of 0.01 (essentially zero) implies that Maruti has almost no bank loans. This is a sign that Maruti is a great company. If RBI increases interest rates drastically, it will not affect Maruti's financials at all.
  • Dividend payout ratio of 23.13% is a sign of good quality company. The management is sharing the company's profits with its shareholders.
  • Return on equity of 17.83% is pretty decent. This means if required, it can borrow from banks at 10% for capacity expansion and earn 18%.

Step 2: Scroll down and look at the last 10 years financials of Maruti Suzuki.

Guide: Investing in shares of the automotive sector-maruti.jpg

Now the above numbers might look a bit intimidating, but one needs to look at 3 or 4 columns only -
  • Sales: Rs. 10,910 Cr in FY'05 has gone up to Rs. 67,984 Cr in FY'17. TTM means trailing 12 months data. That's 7 times increase in 11 years.
  • Interest: Interest costs are negligible when compared to its operating profit. For some companies, interest costs alone will be 25 to 50% of operating profits - so this is an important parameter to look at.
  • Dividend Payout %: It was in single digits for most of the time, but now the company has slowly increased the payout. This is a sign that management is very confident of future cash flows.
  • Net Profit: Rs. 840 Cr in FY'05 has grown to Rs. 7337 Cr in FY'17. Except for a dip in FY09 (1700 Cr to 1200 Cr), it has been a smooth sailing for Maruti. For comparison, let's look at Ashok Leyland numbers -

Guide: Investing in shares of the automotive sector-ashokleyland.jpg

The profit numbers for Ashok Leyland is extremely lumpy. Profits crashed 60% in FY09. Since FY11, profits fell for 3 consecutive years (631 Cr went down to 565 Cr, 433 Cr and even 29 Cr) before shooting back up again. Just looking at this 10 year sales & profit numbers gives you an idea that MARUTI is a classy stock when compared to ASHOK LEYLAND. Read 'classy' as financially well managed company.

Step 3: Next, look at the growth in percentage terms.

Guide: Investing in shares of the automotive sector-maruti_compound.jpg

Maruti's 10 year sales growth is 16% per annum (compounded annual growth rate or CAGR). But it has slowed down a bit in recent years - around 10% CAGR when you look at last 3 and 5 year numbers. Next, look at the profit growth numbers - it is consistently higher than sales growth. This means the company's margins are slowly increasing.

We also get to know why Maruti trades at 30 times earnings (30 PE). That's because in the past 3 years, it has grown at 28% per annum. And the 'market' expects Maruti to continue growing at that pace in the near term. Similarly, Eicher Motors has 48 PE (48 times profit). Why? Just look at Eicher Motors (Eicher CVs + Royal Enfield) profit growth numbers -

Guide: Investing in shares of the automotive sector-eicher.jpg

Powered by Enfield bullet sales, Eicher Motors has delivered 42% per year profit growth in past 10 years and 48% per year profit growth in the past 5 years


Step 4: No point in reading FY16 annual report of Maruti since new one for FY17 will be out soon. But one can read brokerage coverage of the stock you want to buy. Go to www.trendlyne.com and type 'Maruti'. Move the mouse to 'average brokerage target' and click on 'number of reports' link

Guide: Investing in shares of the automotive sector-maruti_report.jpg

There are a number of reasons why you need to read brokerage reports. These guys usually have direct access to top management of the company, and can help you track the company you have invested in. Example, here are some interesting bits about Maruti Suzuki from the ICICIDirect.com report -

Quote:
  • Even when the diesel share of industry volumes is declining, MSIL’s diesel volumes increased 13.6% YoY
  • MSIL’s parent company Suzuki Motocorp has recently formed a JV with Denso Corp & Toshiba Corp to produce lithium ion batteries
  • Reduced exposure to JPY due to higher exports to Japan and royalty payment on new products in rupee, lower discounts led by better product mix, positive operating leverage led by strong demand and weaker yen will contribute positively to margins
Off the record, management usually shares their estimated profits for the next 2 years - according to the report, Maruti's profits are likely to go up approximately 18% in FY18 and 15% in FY19. But these are just estimates, and actually numbers can be quite different. Absolutely nobody can predict the future, not even the management.

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Step 6: Do a quant analysis. A computer program can how cheap or expensive a stock is, analyze its financials and earnings potential. After all, stock analysis is all about number crunching. First go to www.valueresearchonline.com and type 'Maruti'.

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Key takeaways:
  • No threat of bankruptcy
  • Has done very well financially over the past one year
  • Low probability of golmaal in the balance sheet.
  • Compared to its past history, PE rating is about average. It has traded at 41.19 PE in the past
  • Price to Book Value (more on this in the next post) is at its highest (means valuations are high)
  • PEG is 1.95 (compares current PE with future growth). Means future growth is only around 15% per annum, but is trading at 30 times earnings. Should ideally be lower than 1.

Valueresearchonline.com can also be used to check past price performance. Rs. 1 Lakh invested in Maruti stock in Jun 2004 would be worth Rs. 13 Lakhs now. It's the exact opposite of what a Rs. 13 Lakhs car you bought in 2004 would be worth now!

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There is another stock analytics site called www.marketsmojo.com. Their program checks the financials, valuations and future growth potential and has a simple traffic light type - RED/AMBER/GREEN system - for quality, valuations and financial performance.

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Note the 'lights' of M&M and Tata Motors too.


Step 7: Invest in Maruti stock!

So we now know that Maruti is a quality stock (market leader, excellent profit growth, no debt, high RoE) but is also quite expensive (30 PE, poor dividend yield, future estimated growth is only around 15 to 16 percent per annum). Best strategy to adopt is to 'accumulate' the stock.

1) Let's say you want to invest Rs. 1 Lakh in Maruti, but you find it expensive.
2) Invest Rs. 10,000 right away.
3) And then invest Rs. 10,000 every month over a period of 12 months. Or Rs. 5,000 every month over a period of 24 months.

Another strategy would be to invest something like Rs. 50,000 - and then invest more only when the stock falls below your purchase price.

Last edited by smartcat : 8th June 2017 at 23:49.
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Old 8th June 2017, 18:40   #3
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CASE STUDY 2: PPAP AUTOMOTIVE

Analyzing Maruti stock is relatively simple because almost everything is hunky dory about the company. We know it is a market leader and it has great financials. But what about investing in companies that nobody has ever heard of? A friend of mine whatsapped me and asked me to check out this auto component maker called 'PPAP Automotive'. But before that, here are a few pros and cons of investing in auto component makers -

PROS:
  • Will generally trade at low PE than automotive brands like Bajaj or M&M. They are cheaper to buy.
  • Does not matter if Maruti is gaining market share or Tata is losing market share. Most of these guys supply components to all brands
  • You cannot invest in a Toyota India or Ford India or a Honda India stock. But you can invest in component makers who supply parts to them.
  • Stable customer base. Big car manufacturers will not keep switching suppliers
  • Strong government support to auto component makers. Very little chance of imports messing up the numbers (there are few exceptions like tyres and battery industries though)

CONS:
  • With a few exceptions like Bosch, these companies will never trade at a 'premium' to the market.
  • Most of them have poor pricing power since they are dependent on big car brands. Arm twisting can result in weak margins and RoE.
  • Many of them have high debt and uneven financial performance.

Coming to PPAP Automotive, the first thing you do when you come across a new unknown company is to check out their website - http://www.ppapco.in in this case. First impressions are good - very unique business with low competition possibly. They make 'automotive sealings' and interior/exterior plastic bits.

Guide: Investing in shares of the automotive sector-ppap.jpg

Guide: Investing in shares of the automotive sector-ppap2.jpg

Spend some time checking out all the links (about us, products, infrastructure, technology etc) on the website. Doing that, you will get to know that company has a technology tie-up with a Japanese company for their sealings business. Since this is an unknown company, read up the first 10 or 15 pages of the FY16 annual report where the management talks about their business. Stop reading the annual report when the balance sheet stuff comes up. A small company like PPAP having 'Investor Presentation' too is a good sign
http://www.ppapco.in/conference-call.html

Quickly browse through the 40 something page PPT file because you don't have brokerage coverage on such stocks.

Next, check screener.in for PPAP's financials. Key takeaways -
  • Rs. 515 Cr market cap company. This is both an opportunity and a risk.
  • 21 PE. Seems reasonable when compared to Maruti, but 'expensive' for such a small unknown auto component maker. Watch out!
  • Dividend yield of 0.54%, again points to the fact that PPAP Automotive is expensive. Look for dividend yield of atleast 2 to 3% in small companies like this.
  • Debt to equity ratio of 0.35 is good. Lower than 1 is a good sign.
  • Dividend payout ratio of 18% too is a good sign. The profits are 'real'.
  • Return on equity of just 7.5% is a very bad sign. Remember that a fixed deposit offers 8% returns.

A mixed bag so far, with a slight tilt towards being a 'not so great' investment. Next step is to look at its 10 year financial history. Key takeaways -

Guide: Investing in shares of the automotive sector-10yerappap.jpg
  • Sales have gone up steadily at a rate of 10% per annum. Good!
  • Operating profit margins are unusually high (means there is very little competition)
  • Interest costs are negligible when compared to operating profits. Excellent!
  • Net profit is all over the place. Net profit of 7, 13, 27, 1, 5, 24 Cr does not inspire confidence, but it is mostly because of high depreciation charges. They probably setup new factories or spent money on new machinery. Read old annual reports to confirm.
  • They stopped paying dividends for 3 years (look at dividend payout ratio) which again is a sign of a not-so-great company.

You will come across many companies like above with lumpy profits. It might not be a great business like Maruti, but one cannot rule it out as an investment. To analyze such companies, you need to look at its 'book value'/net worth/reserves

Book Value = Assets (cash/inventory/factory machinery/raw materials) minus Liabilities (bank loans)

Guide: Investing in shares of the automotive sector-ppap_reserves.jpg

Note that the networth has increased from Rs. 25 cr in FY05 to Rs. 200 Cr. in FY16. That is 8 times in 11 years or 20 percent per annum. Not too shabby eh? That's because although profits are lumpy, profits are profits and they are accumulated by the company. These accumulated profits might be invested in new businesses or capacity expansion in the future. Strong long term growth in networth means PPAP Automotive will take off like the GSLV rocket one fine day, and it did in Feb 2017 - stock value doubled in 3 months.

MY TAKE:

PPAP Automotive's networth is around Rs. 210 Cr (196 + 14 Cr) but its market cap is around Rs. 515 Cr. This means the Price to Book Value is around 2.3. I would buy a stock like PPAP Automotive only at P/BV of less than 1 - that is when market value is equal to networth of the company. Current price of PPAP stock is Rs. 368 but the fair value according to me is 368/2.3 = Rs. 160

But who am I to say what the fair value of a company should be? I'm a nobody. The 'market' decides what the fair value should be. That's where analytics websites help - let's see what valueresearchonline and marketsmojo have to say about PPAP Automotive.

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Key takeaways from analytics websites:
  • Low probability of going bankrupt
  • Has done well financially
  • Some probability of 'creative/wrong' accounting practices (Valueresearch)
  • Average quality stock but valuations are fair (MarketsMojo)

CONCLUSION:

As mentioned before, if you like particular company with an interesting business and decent financials, INVEST! But invest a small amount first and add more depending on improved financials (higher profit) or correction in stock price.

Last edited by smartcat : 9th June 2017 at 00:11.
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Old 8th June 2017, 20:56   #4
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THE EASIER WAY

You are in Manali and want to get to Leh. You can either drive a car yourself or take the bus! The equivalent of taking a bus is to invest in the UTI Transportation & Logistics Fund. This mutual fund invests only in automobile stocks and auto component makers. Basically, let the professionals manage your investment. This fund has returned an average of 20% per annum since its inception in 2005.

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This is what their portfolio looks like. The fund manager will decide which stock to buy/add more/sell a bit or exit completely.

Last edited by smartcat : 8th June 2017 at 21:01.
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Old 8th June 2017, 21:12   #5
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For those who like to hunt for treasure, here is a LIST OF LISTED AUTOMOBILE COMPANIES & AUTO COMPONENT MANUFACTURERS:

Two & Three Wheeler Manufacturers:

Bajaj Auto
Hero Motocorp
TVS Motor
Atul Auto

Passenger cars, Tractors & Commercial Vehicles

Maruti Suzuki
M&M
Tata Motors
Eicher Motors
Ashok Leyland
Force Motors
Escorts
VST Tillers
Automobile Corporation of Goa
SML Isuzu

Auto Component Makers (You can figure out what they do by decoding their names! )

Shivam Autotech
Alicon Cast.
Amtek Auto
ANG Industries
Asahi India Glass
ASL Industries
Auto Stampings
Autoline Ind
Autolite India
Automotive Axle
Automotive Stamp
Banco Products
Bharat Forge
Bharat Gears
Bharat Seats
Bosch
Castex Tech
Duncan Eng
Endurance Technologies
Enkei Wheels
Fag Bearings
Federal-Mogul Go
FIEM Ind
Frontier Spring
Gabriel India
GNA Axles
Guj Auto Gears
Harita Seating
Hind Composites
India Motor Part
India Nippon
IP Rings
Jagan Litech
Jamna Auto
Jay Bharat Mar.
Jay Ushin
JBM Auto
JMT Auto
Jullundur Motor
L G Balakrishnan
Lumax Auto Tech
Lumax Inds.
Machino Plastic
Menon Bearings
Menon Pistons
Minda Corp
Minda Inds.
Motherson Sumi
Munjal Auto Inds
Munjal Showa
NRB Bearings
Omax Autos
PAE
Phoenix Lamps
Porwal Auto
PPAP Automotive
Precision Camshf
Pricol Ltd
Rajratan Global
Rane (Madras)
Rane Brake
Rane Engine Val.
Rane Holdings
Rane Madras
Rasandik Engg
Raunaq Auto
Remsons Ind
Rico Auto Inds
Samkrg Pistons
Setco Auto
Shanthi Gears
Sharda Motor
Shivam Auto
Shriram Pistons
Sibar Auto
SKF India
Sona Koyo Steer.
Spectra Ind
Steel Str. Wheel
Subros
Sundaram Brake
Sundaram Clayton
Suprajit Engg.
Talbros Auto
The Hi-Tech Gear
Timken India
Triton Valves
Tube Investments of India
UCAL Fuel
WABCO India
Wheels India
ZF Steering Gears

Battery Manufacturers:

Exide Ind
Amara Raja Batt

Engines:

Cummins
Kirloskar Oil
Greaves Cotton
Swaraj Engines
Kirloskar Ind

Tyres:

MRF
Balkrishna Ind
Apollo Tyres
Ceat
JK Tyre & Ind
TVS Srichakra
Goodyear
Indag Rubber

Lubricants

Castrol India
Gulf Oil
Tide Water Oil (makers of Veedol)
Savita Oil (makers of Savsol)
GP Petroleum

Fuel Retailing

Indian Oil
BPCL
HPCL

IT (with focus on automobile sector)

KPIT Technologies
IZMO cars
Tata Elxsi

Finance (with focus on automobile sector)

Shriram Transport Finance
Sakthi Finance
Muthoot Capital
M&M Finance
Motor & General Finance
Sundaram Finance
Magma Fincorp
Cholamandalam Insurance & Finance Co

Last edited by smartcat : 9th June 2017 at 07:54.
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Old 9th June 2017, 08:54   #6
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Default Re: Guide: Investing in shares of the automotive sector

Thread moved from the Assembly Line (The "Assembly Line" Forum section) to the Indian Car Scene. Thanks for sharing!

Rating 5 stars, hits subscribe .

You have a great way of explaining things, SmartCat. I'm looking at strengthening my portfolio with some additional automotive stocks and will be following the discussion closely.

Thanks again.

Since you analyse so closely, what are your current top 3 picks in the automotive sector?

Last edited by GTO : 9th June 2017 at 08:57.
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Old 9th June 2017, 09:12   #7
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Default Re: Guide: Investing in shares of the automotive sector

Awesome level of detail and great explanation. Thanks for sharing. Like GTO, I too am interested to hear your top three picks.
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Old 9th June 2017, 10:05   #8
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Default Re: Guide: Investing in shares of the automotive sector

Thanks smartcat for starting this wonderful thread!

I have following auto stocks in my portfolio
Tata Motors
Minda Corporation
Sona Koyo

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Old 9th June 2017, 10:09   #9
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Default Re: Guide: Investing in shares of the automotive sector

Wonderful thread! Always followed automobile stocks, but never invested in it; however, as recommended by you, took the easier way out and invested now through UTI MF.
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Old 9th June 2017, 10:11   #10
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Default Re: Guide: Investing in shares of the automotive sector

Right now with a tectonic shift in technology on the cards, it is impossible to predict who will become the Kodaks. The EV leaders may just kill off the IC engine industry as we know it. What will be the trends, who will succeed I do not know.
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Old 9th June 2017, 11:39   #11
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Default Re: Guide: Investing in shares of the automotive sector

Quote:
Originally Posted by sgiitk View Post
Right now with a tectonic shift in technology on the cards, it is impossible to predict who will become the Kodaks. The EV leaders may just kill off the IC engine industry as we know it. What will be the trends, who will succeed I do not know.
Since we log on to Team-BHP every single day, we have first row seats for the show. We will know the shift in trends before mutual funds or brokerages or Economic Times or CNBC does. All you need to do then is identify companies that are getting into EV space.

When we invest in auto sector stocks, we are not betting on internal combustion engine. We are betting on smart management who can identify the shift in customer preferences and act on it.

Quote:
Originally Posted by GTO View Post
Since you analyse so closely, what are your current top 3 picks in the automotive sector?
Quote:
Originally Posted by Mad Max View Post
I too am interested to hear your top three picks.
I have the following automobile sector stocks in my portfolio -

Greaves Cotton (makes small diesel engines for CVs like Piaggio, Tata Ace Zip etc)
Goodyear India
Bajaj Auto
Hero Motocorp
Ashok Leyland

KPIT Technologies is my "12th man" (meaning I need to do more research. I have recently bought a tiny amount)

I won't say I'm "bullish" on the above stocks. Instead, I will say that I find "value" in these companies. These are not "hot stocks" that will be discussed on CNBC or recommended on whatsapp groups. They have strong brand value and customer stickiness, good RoI, no debt, high dividend yield and payout ratio. But they are not "fast growers" as of now.

Once you invest in such stocks, it is as exciting as watching a bowl of milk on a gas flame. But when you are not looking, these stocks are likely to boil over.

Last edited by smartcat : 9th June 2017 at 11:47.
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Old 9th June 2017, 11:58   #12
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Default Re: Guide: Investing in shares of the automotive sector

Thanks Smartcat for the awesome read, plenty of information.
Me too curious to know your top 3-5 picks.

I have personally invested in Steel Strip Wheels, Ashok Leyland, Maruti Suzuki, JK Tyre, Lumax Auto Tech, and sold Tube Investment at a profit during de monitization drive.

Your post gives me confidence to invest more into Auto/Auto Ancillary industry.
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Old 9th June 2017, 12:20   #13
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Default Re: Guide: Investing in shares of the automotive sector

Smartcat, much thanks for this. Of all the stocks listed, its definitely the automotive ones that have an edge over the others for our ( enthusiasts ) investment. I invested in 3 shares of Eicher Motors just when we had the rumours of the Himayalan launch. Plus seeing the positive responses on the thread, I was sure of its success. At that time I was a student and invested all my savings into this. Definitely a decision I won't regret.

Before the BS3 deadline, I had invested in UCAL Fuelsystems, and that too gave a nice return. Currently I have the shares of GNA Axles, UCAL fuel, and MSIL. Dad holds some of Tata Motors. Being a Bhpian gives me unique insights to the Automotive sector in India and I can closely monitor the news of those companies. Also it's actually interesting to read about things one is interested in rather than reports of some textile, or cement company.
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Old 9th June 2017, 12:41   #14
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Default Re: Guide: Investing in shares of the automotive sector

Great thread!! I am also an active investor and always thought that team-bhp users who are passionate about auto sector have potential to get an edge even though auto is one of the most followed sectors.

For those interesting in learning more about Investing and specifically in Indian context please look at Valuepickr forums. It is definitely the best source for learning. There are threads on books etc. to read or approaches that senior investors take.

Remember Investing is a a lifelong learning journey so you are never going to be right 100% . You will make a lot of mistakes and learn from it. But it is all about getting involved and constantly learning.

Some watchouts/comments from my very limited experience

1. Investing even in a single company is a constant process - you have to follow the performance on quarterly basis and take actions based on it. You may have developed a conviction about a stock but stories change over time. Especially in Auto the whole industry and individual companies go through cycles.

2. Great product not equal to great company - This is a trap a lot of us enthusiast are likely to fall into. WE may be irrationally in love with a brand but it may be one of the worst run company ever. SO while investing please keep your love for the products aside. This is going to be even more difficult for enthusiasts.

3. Great company is not equal to a great stock - A company can also be great business also but still it can be too expensive a stock to give you any reasonable return. Valuations are important!

4. Past is not the future - It has already happened and it is not a guarantee to repeat. Eicher motors has made people rich multiple times over riding on success of RE. But it is now at really high valuations.

5. Have a healthy dose of skepticism with everything especially financial numbers. This is a mindset/attitude not found among enthusiasts like us!

6. Avoid leverage!! Now this is going into more specific philosophy of choosing stocks but applies even to your own life. DO not take debt to invest and also try to avoid companies heavily into debt.

7. Sort your personal finance plans. Before committing money to any investment mode (stocks/land/gold/etc.) do you have an overall plan- do you know your long term goals and what are doing to meet them. What is your asset allocation? Follow some blogs like freefincal, subramoney etc. to learn more

At the end be open to learn always
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Old 9th June 2017, 12:55   #15
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Default Re: Guide: Investing in shares of the automotive sector

Great post!

Quote:
Originally Posted by neeravnaik View Post
2. Great product not equal to great company - This is a trap a lot of us enthusiast are likely to fall into. WE may be irrationally in love with a brand but it may be one of the worst run company ever. SO while investing please keep your love for the products aside. This is going to be even more difficult for enthusiasts.
Conversely, just because you find a brand or product crappy, it does not mean you should avoid investing in them. Eg: JK Tyres on my A-star was hard as Flintstone's car tyres, but the company is doing well and is trading at decent valuations. I might pick up the stock, but not the product. Because JK's customers want such hard wearing, long lasting tyres.

However, if you notice falling levels of quality (Eg: Tata Motors between 2010 and 2016) or customer experience at the service center - and it shows in stagnating/dropping sales, then you might want to avoid both the product and the stock.

Last edited by smartcat : 9th June 2017 at 13:01.
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