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Old 23rd September 2018, 10:45   #256
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Default Re: Guide: Investing in shares of the automotive sector

This is definitely a good time to buy Maruti, considering their growing market domination. They're also ready for EVs. Plus, don't forget their partnership with Toyota!
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Old 23rd September 2018, 11:15   #257
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Default Re: Guide: Investing in shares of the automotive sector

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This is definitely a good time to buy Maruti, considering their growing market domination. They're also ready for EVs. Plus, don't forget their partnership with Toyota!
Don't you think the introduction of Bharat NCAP ratings will affect the margins. It will be more competitive going forward.
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Old 23rd September 2018, 11:37   #258
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Don't you think the introduction of Bharat NCAP ratings will affect the margins. It will be more competitive going forward.
Maruti's margins are primarily affected by volatility in commodity prices - steel, aluminum, crude oil (plastics) and so on. Steady movements in commodity prices can be managed by price hikes or discounts. It's the large sudden movements that kill margins in the short term.

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

Maruti's operating profit margins have ranged between 7 and 15%. Since it is at the highest levels, I guess you could consider margin compression as a risk - but only if there is a sudden spike in commodity prices.

Pricing issues due to regulations like Bharat NCAP or mandatory airbags/ABS will be passed on to consumers since all manufacturers are affected. Also, in Maruti's case, vehicles that do not satisfy Bharat NCAP like Omni, Eeco, Alto etc have very little serious competition. So, in a way, customers have no choice other than a Maruti.

Wagon R (not Bharat NCAP compliant) sales might be affected slightly though since consumers have decent choice in this segment.

Last edited by SmartCat : 23rd September 2018 at 11:42.
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Old 23rd September 2018, 13:21   #259
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Default Re: Guide: Investing in shares of the automotive sector

For those who may be interested in TVS Motors shares, something to ponder.

- TVS Motors market cap is about 28400 crores.
- Sundaram Clayton is the promoter of TVS Motors and owns 57.4% stake.
Both companies have the same CEO.
- Here is the interesting bit. Sundaram Clayton market cap is about 8000 crores, while the value of its stake in TVS motors is about 16000 crores.
- Sundaram Clayton share price is 4000 Rs. Each Sundaram Clayton share has 13.5 TVS Motors shares included by virtue of 57.4% stake. The value of 13.5 shares is about 8000 Rs.
- Market is significantly undervaluing Sundaram Clayton. Even assuming zero value to Sundaram Clayton business, the value of TVS Motors alone is 8000 per share.
- So owning Sundaram Clayton could be a indirect way of acquiring TVS motors shares at half the price.
- One has to be patient and there is always the risk of this discount/undervaluation not going away for a long time.

Disclaimer: This is not a stock reco. Please do your due diligence.
Disclosure: I own 15 shares of Sundaram Clayton
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Old 23rd September 2018, 15:00   #260
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Default Re: Guide: Investing in shares of the automotive sector

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Originally Posted by altius View Post
For those who may be interested in TVS Motors shares, something to ponder.

- TVS Motors market cap is about 28400 crores.
- Sundaram Clayton is the promoter of TVS Motors and owns 57.4% stake.
Both companies have the same CEO.
- Here is the interesting bit. Sundaram Clayton market cap is about 8000 crores, while the value of its stake in TVS motors is about 16000 crores.
- Sundaram Clayton share price is 4000 Rs. Each Sundaram Clayton share has 13.5 TVS Motors shares included by virtue of 57.4% stake. The value of 13.5 shares is about 8000 Rs.
- Market is significantly undervaluing Sundaram Clayton. Even assuming zero value to Sundaram Clayton business, the value of TVS Motors alone is 8000 per share.
- So owning Sundaram Clayton could be a indirect way of acquiring TVS motors shares at half the price.
- One has to be patient and there is always the risk of this discount/undervaluation not going away for a long time.

Disclaimer: This is not a stock reco. Please do your due diligence.
Disclosure: I own 15 shares of Sundaram Clayton
Holding companies usually trade at a discount! Its the same for, for example, Maharastra Scooters (that holds shares of various Bajaj group companies and is one of their holding company). Maharastra Scooters also trades at a discount to their holding (Market value of investments Rs.8045.15 Cr. is more than the Market Cap Rs.3026.89 Cr.). Discount of 50% is not uncommon really.

Last edited by joslicx : 23rd September 2018 at 15:08.
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Old 23rd September 2018, 17:29   #261
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Default Re: Guide: Investing in shares of the automotive sector

Can someone please share your thoughts on " Janma Auto Industries" ? As I am new to investing, I was looking for some inputs before investing in this share. I think that Maruti is too high a stake for a beginner like me.
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Old 23rd September 2018, 19:10   #262
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Default Re: Guide: Investing in shares of the automotive sector

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Sundaram Clayton is the promoter of TVS Motors and owns 57.4% stake. So owning Sundaram Clayton could be a indirect way of acquiring TVS motors shares at half the price.
wow, I did not know that! Your thesis is spot on.

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Originally Posted by joslicx View Post
Holding companies usually trade at a discount! Its the same for, for example, Maharastra Scooters (that holds shares of various Bajaj group companies and is one of their holding company). Maharastra Scooters also trades at a discount to their holding (Market value of investments Rs.8045.15 Cr. is more than the Market Cap Rs.3026.89 Cr.). Discount of 50% is not uncommon really.
Key difference is that Sundaram Clayton has an operating business (auto components) too, and is not just a holding company. Another such example -> Grasim owns ultratech. I would rather own Grasim because of its low valuations and it has an operating business. Grasim can consolidate Ultratech results into their balance sheet.

What you are right about is the holding company discount. That gap will probably never be bridged. But still, it makes sense to buy the parent since technically, you are part owner of this business when you buy shares. In most cases, dividend yield of parent company will be higher (since it will be trading at low valuations)

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Can someone please share your thoughts on " Janma Auto Industries" ? As I am new to investing, I was looking for some inputs before investing in this share. I think that Maruti is too high a stake for a beginner like me.
Beginners should ideally start by investing in large companies like Maruti. Go looking for hidden gems after you have 3 to 5 years experience picking stocks. Because when you invest in large companies, worst case scenario is wrong timing (that is, paying a high price). Wait it out and you will almost always make money. But with small cap stocks, there are 2 possible mistakes you can make -> wrong timing/price and wrong business fundamentals.

Meanwhile, Jamna Auto seems like a solid business, a proxy for growth in CV industry. Low debt, excellent return on equity, high dividend payout ratio (means promoters are honest) and good growth. Only fly in the ointment is valuations (21 PE, 3200 cr marketcap). I would buy this at about 25 to 35% lower price.

For you, I'd suggest buying a small quantity - say 25% of what you originally planned to invest. Then buy more for every 10% fall (if it ever comes).

Last edited by SmartCat : 23rd September 2018 at 19:18.
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Old 24th September 2018, 08:25   #263
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Default Re: Guide: Investing in shares of the automotive sector

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Originally Posted by altius View Post
For those who may be interested in TVS Motors shares, something to ponder.
An interesting buy is to consider the various TVS Group auto ancillary companies.

I own shares in Sundaram Brake Linings and Sundaram Fasteners and buy the dips in it one share at a time. Under 500 each so good value for money to slowly accumulate.
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Old 24th September 2018, 10:01   #264
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Default Re: Guide: Investing in shares of the automotive sector

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Originally Posted by smartcat View Post

Beginners should ideally start by investing in large companies like Maruti. Go looking for hidden gems after you have 3 to 5 years experience picking stocks. Because when you invest in large companies, worst case scenario is wrong timing (that is, paying a high price). Wait it out and you will almost always make money. But with small cap stocks, there are 2 possible mistakes you can make -> wrong timing/price and wrong business fundamentals.

Meanwhile, Jamna Auto seems like a solid business, a proxy for growth in CV industry. Low debt, excellent return on equity, high dividend payout ratio (means promoters are honest) and good growth. Only fly in the ointment is valuations (21 PE, 3200 cr marketcap). I would buy this at about 25 to 35% lower price.

For you, I'd suggest buying a small quantity - say 25% of what you originally planned to invest. Then buy more for every 10% fall (if it ever comes).
Thank you for your extremely valuable thoughts and do agree that as a beginner I should invest in large companies with stable and sure outcomes. However, considering my current situation, I might have been able to afford Maruti shares even at 2K but with the price close to 8K is making me turn away from this share since even after investing close to 24K, I shall still be owning just 3 shares of the company, each of which have a face value of Rs 5 and a book value of around 1.5 K. What would be the next best alternative to consider - TVS Motors, Atul Auto or Motherson Sumi?
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Old 24th September 2018, 18:52   #265
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Thank you for your extremely valuable thoughts and do agree that as a beginner I should invest in large companies with stable and sure outcomes. However, considering my current situation, I might have been able to afford Maruti shares even at 2K but with the price close to 8K is making me turn away from this share since even after investing close to 24K, I shall still be owning just 3 shares of the company, each of which have a face value of Rs 5 and a book value of around 1.5 K.
If you check first page of this thread, you will notice that I have not used the words "face value" or "market price" of stock at all. These two parameters are totally irrelevant. A small refresher on important parameters:

- Market cap (bigger companies are safer, smaller companies have high return potential)
- PE Ratio (lower PE means stock is trading cheap)
- Price to book value (low PBV means stock is trading cheap)
- Dividend yield (like getting rental income from an apartment, higher the better)
- Dividend payout ratio (high DPR means management is honest)
- Return on equity (High RoE means it is a good stock)
- Debt to equity ratio (Lower the better. Unlikely to go bankrupt)
- Sales & profit growth

Data is available at www.screener.in

Quote:
What would be the next best alternative to consider - TVS Motors, Atul Auto or Motherson Sumi?
Of the lot, Motherson Sumi seems to be trading at very reasonable valuations and is a largecap stock too.

Last edited by SmartCat : 24th September 2018 at 18:54.
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Old 27th September 2018, 22:13   #266
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Default Re: Guide: Investing in shares of the automotive sector

Reason for recent weakness in Maruti stock?

Guide: Investing in shares of the automotive sector-img20180927wa0022.jpg
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Old 28th September 2018, 01:13   #267
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Default Re: Guide: Investing in shares of the automotive sector

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Originally Posted by hserus View Post
An interesting buy is to consider the various TVS Group auto ancillary companies.

I own shares in Sundaram Brake Linings and Sundaram Fasteners and buy the dips in it one share at a time. Under 500 each so good value for money to slowly accumulate.
I would revisit Sundaram brake linings investment. ROE seems less and dividends are also not there.

Quote:
Of the lot, Motherson Sumi seems to be trading at very reasonable valuations and is a largecap stock too.
Motherson seems interesting. Thanks for pointing out
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Old 28th September 2018, 07:00   #268
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Reason for recent weakness in Maruti stock?

Attachment 1802726

I think people don't buy cars just before the festive season anyway. There was a report some time back saying all dealers of all manufacturers are sitting on mire than usual inventory. So while this might be a cause this isn't probably the only one.
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Old 28th September 2018, 11:27   #269
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Default Re: Guide: Investing in shares of the automotive sector

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I think people don't buy cars just before the festive season anyway. There was a report some time back saying all dealers of all manufacturers are sitting on mire than usual inventory. So while this might be a cause this isn't probably the only one.
Most high valued stocks have been seeing a correction since the last few weeks. Its not restricted to Maruti or the auto sector alone.

The thing is, whenever a stock becomes expensive, any small news related to it will also lead to a correction. (By expensive, I mean a high P/E or a high P/B). So in case of Maruti, it could be the sales data.

I still believe its a good time to buy such dips. The stock should be back to 8000+ levels soon.
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Old 28th September 2018, 12:26   #270
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Default Re: Guide: Investing in shares of the automotive sector

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Reason for recent weakness in Maruti stock?
My eyebrow was raised when I saw this half page advertisement in today morning's paper.

As of now stats or trends do not reveal anything alarming or out of place.

I have always wondered the runaway car sales amid a slow economy, was it the 7th pay commission affect which has finally worn off now.

In the present case, is it only a pause before the festival season breakout or Maruti management is seeing something more than whats visible to us.
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