[Nonstop-driver]

Great thread Smartcat, I believe I'll be a regular here

Another point I'd like to add to the discussion is Smallcase.com. Smallcase is a portal by broker - Zerodha that lets you invest on ideas, instead of stocks.

How it works is - Let's say you are aware that this year the monsoon will be above average and you want to invest in companies that will benefit from a good monsoon. Say, Escorts, VST, M&M will be able to sell more tractors due to a good monsoon, besides other beneficaries. But how do you find that out?

Smallcase prepares a bunch of stocks based on an idea and lets you invest in them with a press of a button. These smallcases are prepared by their experts but 100% customizable. Also, they are rebalanced every quarter.

Popular ideas on smallcase include:
1. Affordable housing
2. GST
3. Monsoon Cheer
4. The great Indian middle class

Similarly, there could be smallcases related to automobile industry, or one can be created. For example, an idea/ opportunity could be mandatory Airbag implementation in India, AHO implementation, Electric automobiles, or something as simple as low-value auto ancillary, and so on..

[WhiteFang]

Thank you SmartCat. That's quite an analysis I must say.

We BHPians are aware about how well positioned automobile companies are, not just in sales but also in their intentions and future prospects. This can be a great advantage while investing in Automobile stocks.

In short term pricing of most of stocks are decided by operators who come on-board without deep knowledge of these companies. That is where I think we can get stocks at a bargain place.

For example during China floods in 2015, Tata Motors got lot of battering from these operators because of its exposure in JLR but at the same time it gave a wonderful opportunity for people to accumulate Tata motors share at a very low price. There are many situations like this were markets were unable to look beyond short term.

In my longterm portfolio I have Tata Motors, Motherson Sumi, Exide Industries, Ashok Leyland, JK Tyres all bought at a bargain price. (During market crisis and not so good company specific news.)

[ishankpatel]

Wow! this is information is gold! or in stock market words a hidden gem!

Great explanation on how to evaluate a stock without using complicated words that normally lead to people deeming stock market as boring or scary!

@Smartcat: Thanks for sharing the knowledge!

As a person having interest in the stock market as well as the automotive industry (since I work for one of the worlds biggest Tier 1 suppliers) I think the automotive scene in India still has a lot of upside.

In my opinion, the most interesting stocks to look into would be Tier 1 suppliers with strong leadership and a solid history of consistent business. Especially the ones who are involved in supplying to Europe based OEMS.

The automotive industry is price driven. Less so in Europe than India, but nevertheless, a tier 1 supplier who can supply quality products at competetive prices to the European OEMS which are setting foot in India will have consistent domestic, as well as Export business coming its way consistently.

Once such Company that comes to my mind is Motheson Sumi. Although I havent done a detailed Analysis of the company, it is not exactly a hidden gem either.

@Smartcat: Would be interesting to hear your opinion/analysis about Motherson Sumi!.

Again, thanks for sharing, great post!

Regards

Ishan

[deepfreak15]

Wow.Thank you very much for this informative thread.

[r0nit7]

Well detailed & very informative

Coming to us team-bhpians having the front row seats to the automotive scene in India, don't you think Tata Motors is a good investment right now in the long run. Reasons:
+ They are definitely turning a tide in the quality of products being offered right now(read: Hexa, Tiago, Tigor, Bolt, Zest)
+ The upcoming Nexon looks promising to say the least.
+ Recent partnership with Indian Army for Safari's
+ Recent partnership with VW for platform sharing
+ Rumors of upcoming SUVs with heavy assistance from JLR's expertise & a Safari facelift.
+ Inception of TaMo & concepts like C-Cube, RACEMO & the MOFlex platform
+ Overall market perception turning to positive compared to a couple of years back.
+ Don't think they are going to go under either

[CoolFire]

Tata Motors valuations are driven mostly by Jaguar Land rover division's international business prospects. The Indian passenger division is only a minor part of the company (especially profits) at present. It indeed has potential, but may take some more time and a lot more effort from the Indian team. Challenging Maruti in India is a difficult war to wage.

[GTO]

Hey Smartcat, a question: How does one buy an international stock? I always wanted to buy 1 symbolic share of Ferrari . Going by the strides the company is making, it might turn out to be a good investment too!!

[r0nit7]

Originally Posted by CoolFire

Tata Motors valuations are driven mostly by Jaguar Land rover division's international business prospects. The Indian passenger division is only a minor part of the company (especially profits) at present. It indeed has potential, but may take some more time and a lot more effort from the Indian team. Challenging Maruti in India is a difficult war to wage.

By this logic, investing in stocks of every manufacturer other than Maruti's would be financially unwise, but that is not the case. Quoting directly from neeravnaik's post -

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!

The reason I mentioned Tata Motors as an investment for the long run was because its market perception is on the way up & its stocks represent good value currently.

[blackwasp]

Originally Posted by GTO

Hey Smartcat, a question: How does one buy an international stock? I always wanted to buy 1 symbolic share of Ferrari . Going by the strides the company is making, it might turn out to be a good investment too!!

Icici direct has tie up with Saxo Bank for overseas trading. Lots of paperwork and it'll take +3 days for the shares to credit in your account - as per the info I was told. I wanted to buy one share of Tesla but after filling up the forms and going through the brokerage costs, I backed out.

[Nikhs]

70% of my portfolio allocation is towards auto sector stocks, as this is the only sector I understand apart from IT. Currently Holding

Maruti: With GST and festive season in Q2, there are decent upside levels left in this stock. Good to enter at CMP.
Tata Motors: P/E looks very attractive, but no signs of recovery in their CV segment.
Motherson Sumi: Trading Costly.
HeroMotoco: P/E looks attractive. Yet to show it's true potential. Good to enter at CMP.

@SmartCat - Thanks for your Article. Could you Please Suggest your views on Motherson Sumi??

[SmartCat]

Originally Posted by GTO

Hey Smartcat, a question: How does one buy an international stock? I always wanted to buy 1 symbolic share of Ferrari . Going by the strides the company is making, it might turn out to be a good investment too!!

What's the Ferrari story? I vaguely remember looking at its zooming graph on Bloomberg or CNBC sometime back. Are they getting into FWD minivans and SUVs?

Sign up for Interactive Brokers. They are a large international brokerage and is listed on NASDAQ too. Indians can sign up here -
https://www.interactivebrokers.co.in...nts&p=overseas

Originally Posted by blackwasp

Icici direct has tie up with Saxo Bank for overseas trading.

I just got this by email -
http://content.icicidirect.com/maili...stor_june.html

Originally Posted by CoolFire

Tata Motors valuations are driven mostly by Jaguar Land rover division's international business prospects. The Indian passenger division is only a minor part of the company (especially profits) at present.

Correct. Indian passenger cars division contributes just 8 to 10% of overall Tata Motors revenues. Tata Motors has to push a lot more Tiagos, Nexons and Kites to move this needle. The story is somewhat similar with M&M too - the passenger cars/SUV constitute something like 15 - 20% of overall revenues. Also, remember that when you buy M&M stock, you are also buying -

Tech Mahindra
M&M Finance
Mahindra Lifespace (real estate company)
Mahindra Holidays (Club Mahindra)

Maruti Suzuki is the only 'pure' car stock.

Originally Posted by r0nit7

don't you think Tata Motors is a good investment right now in the long run. Reasons:

Originally Posted by r0nit7

The reason I mentioned Tata Motors as an investment for the long run was because its market perception is on the way up & its stocks represent good value currently.

Correct too. Valuations are cheap when compared to Maruti. They are expected to grow their revenues (Tata + JLR) by around 20% over the next couple of years. http://content.icicidirect.com/maili...ors_Q4FY17.pdf

Personally, I'm waiting for Tata Motors management to start paying out dividends again (which they stopped doing 2 years ago). Company stopping dividends means they are not confident of immediate future. My "investment rules" does not allow me to invest in this stock as of now.

Originally Posted by ishankpatel

Would be interesting to hear your opinion/analysis about Motherson Sumi!.

Originally Posted by Nikhs

Could you Please Suggest your views on Motherson Sumi??

Motherson Sumi is the 'Eicher Motors' of auto ancillary space. Pretty much all the numbers are good. But let me highlight some issues with the company, and how it is not actually much of an issue

Client concentration: 44% of Motherson Sumi's revenues are from the VW Group. When VW catches a cold, Motherson Sumi sneezes. Last year, the stock crashed 50% because of VW Gate diesel emission scandal.



However, almost all Indian auto component companies have such client concentration too - read Maruti Suzuki.

High Valuations: Like Maruti, this company too is trading at 30 times earnings. However, there is good short term visibility in earnings growth - most brokerages expect earnings to grow at 30% CAGR over the next 2 years.

High Debt to Equity Ratio: Since Motherson Sumi keeps making acquisitions, they have something like Rs. 4,000 Cr of loans on which they are paying Rs. 400 Cr as interest. However, they have an operating profit of Rs. 4,000 Cr which means interest payments are comfortable. Remember that taking large loans is not bad if you can put it to good use. Motherson Sumi has a RoE of 33% and Return on Capital Employed of 25%

[Khushrav]

This is sensational reporting. It may sound clichéd but this is exactly the type of info that can never be found or explained as lucidly on any market specific site.

I'm forwarding this link with gay abandon to anyone who is interested in markets and share with them simplicity of perspectives.

One of my most cherished reads on TBHP ever!!

[C300]

Wonderful thread smartcat. Rated 5 stars.

Originally Posted by smartcat

- Making money in stocks involves just two factors -> application of logic/knowledge (20%) and psychology (80%).

The biggest problem with the stock market is that price of the investment changes every day.

+1. Based on my brief experience in equity investing, its the daily fluctuating prices and urge to react that kills potential returns.

Originally Posted by smartcat

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.

This works out well for most of us who cant spend time tracking individual stocks. Some of the midcap funds have performed exceptionally well. Even the BlueChip fund - HDFC Equity has delivered 20% CAGR since its inception in 1995.

[CrAzY dRiVeR]

Originally Posted by Khushrav

One of my most cherished reads on TBHP ever!!

+1.

What a thread. I've personally asked this question to Smartcat earlier informing his investment background, if an enthusiast can manage a portfolio with auto companies alone, so he can earn money from the field he is spending so much time with!

Very well detailed thread. 5 star thread, without a doubt.

[Nonstop-driver]

While on the subject, @smartcat, others, what are the available Mutual Funds that invest 100% in auto/ ancillary sector in India?