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Old 11th April 2020, 17:58   #451
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Default Guide: Investing in shares of the automotive sector

I don't think one needs to worry too much about the non-auto and non-farm businesses, They are there but do not influence market valuation of M&M that much. The majority of the revenue and profit come from the automotive and farm equipment sectors. It is the world's largest tractor company by volume!

In terms of market capitalisation, M&M and Tech Mahindra stand head to head, around USD 10 Billion each (per-Corona), so it was a smart move for them to go acquire Satyam all those years ago.

Current valuation discount is tempting, since the stock has lost more than 60% of the value from 18 months ago. Sure, this sector is not going to be one of the first to recover, however, once the recovery does come, M&M will be well positioned. The rural sector will be least impacted due to Corona since Agricultural output will bounce back quickly and the government will pour a lot of money again into the rural sector. Once the recovery comes, M&M will be one of the best positioned to bounce back also in passenger cars, with their new generation turbocharged petrol engines (MStallion) matching the best engines in the world in terms of performance, weight and furl efficiency.

Last edited by 84.monsoon : 11th April 2020 at 18:02.
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Old 24th April 2020, 21:20   #452
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Default Re: Guide: Investing in shares of the automotive sector

@SmartCat

I have a query, normally I do my fundamental analysis before buying a stock. But the real issue I face is, when to make an exit. Now there are two ways of doing it as per my understanding, either use fundamental approach or technical approach(I'm not too good in technical analysis).
What do you suggest a layman should do, besides mugging up more knowledge. Any indicators or parameters you can suggest ?
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Old 24th April 2020, 22:52   #453
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Default Re: Guide: Investing in shares of the automotive sector

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I have a query, normally I do my fundamental analysis before buying a stock. But the real issue I face is, when to make an exit. Now there are two ways of doing it as per my understanding, either use fundamental approach or technical approach(I'm not too good in technical analysis). What do you suggest a layman should do, besides mugging up more knowledge. Any indicators or parameters you can suggest ?
1) I exit a stock when it stops paying dividend or drastically reduces dividend. It is a sign from the management that short term future is uncertain.
2) When a company declares a loss, I cut my losses too and exit from the stock.
3) When a company's interest payment towards loans crosses 25% of operating profit.

However, this time, I intend to be a bit more "lenient" with my rules (1) and (2) because of covid-19.

I also try to maintain an approximately 50:50 equity:debt MF allocation in my portfolio. Because of exuberance, if stock values are inflated (for example, my equity portfolio is 60% and debt MF portfolio is 40% of my total capital), I might decide to sell some stocks and buy debt mutual funds instead.

Which stocks to sell to maintain 50:50 balance between stocks & debt MF depends on:

Marketcap (large cap, midcap and smallcap): I will first sell overvalued smallcaps first, primarily based on current PE ratio/ current dividend yield and then midcaps/largecaps.
Brand or commodised business: I will hold on to a stock like Castrol for a long time since it is a brand, but I might decide to sell ONGC (buy low/sell high strategy) after a couple of years.
Tax Liability: I avoid paying short term capital gains tax by only selling stocks that have been in the portfolio for some time.
Sector weightage: If automobiles or financials have too much weightage in my portfolio, I might lighten positions in such sectors.

Last edited by SmartCat : 24th April 2020 at 22:57.
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Old 25th April 2020, 00:02   #454
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Default Re: Guide: Investing in shares of the automotive sector

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3) When a company's interest payment towards loans crosses 25% of operating profit.
Where would get this information?

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Originally Posted by SmartCat View Post
Tax Liability: I avoid paying short term capital gains tax by only selling stocks that have been in the portfolio for some time.
Isn't the LTCG rule changed from this budget? I think, even LTCG is taxed now, based on our tax slab.
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Old 25th April 2020, 00:26   #455
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Default Re: Guide: Investing in shares of the automotive sector

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Where would get this information?
www.screener.in

Name:  1.jpg
Views: 1181
Size:  33.9 KB

For eg, Motherson Sumi's Debt to Equity Ratio is 1.1 which seems to be on the higher side. But its interest outgo in FY19 was just Rs. 423 cr on an operating profit of Rs. 5,348 cr. This means the company will not have too much trouble managing their debt.

Quote:
Isn't the LTCG rule changed from this budget?
True. Introduction of LTCG and dividend taxes will reduce the overall returns a bit.
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Old 12th May 2020, 20:40   #456
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Default Re: Guide: Investing in shares of the automotive sector

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Eg: I would recommend buying marquee stocks like Maruti, Eicher, Motherson Sumi at a PE<20. Right now, all the stocks are 15 to 20% above the PE Ratio filter I recommend. So I'd recommend that you wait till stock price falls a bit or for earnings growth to pick up (If EPS grows, PE Ratio falls).
Hey Guys - Just came across Eicher motors & see that stock PE is 18.87 (fits Smartcat's filter of PE below 20 ). Found information on screener attached as of 12th May'20 closing day.
Guide: Investing in shares of the automotive sector-screener_eicher-motors.jpg
I have not really tracked the company too much but I am curious to know why it has dropped so much; ofcourse it dropped much more on 23 March'20, have not really tracked enfield sales too much. Also, the YouTube link below has good talk from CEO Enfield.



Can anyone share insights?

Cheers

Last edited by RJK : 12th May 2020 at 20:44.
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Old 12th May 2020, 22:55   #457
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Hey Guys - Just came across Eicher motors & see that stock PE is 18.87 (fits Smartcat's filter of PE below 20 ). Found information on screener attached as of 12th May'20 closing day. I have not really tracked the company too much but I am curious to know why it has dropped so much; ofcourse it dropped much more on 23 March'20, have not really tracked enfield sales too much. Can anyone share insights?
Goody. Finally, Eicher Motors is trading at decent valuations. Eicher Motors stock has fallen 50% from the top (but then, so has Maruti). No explanation as such - stocks to tend get go through phases of overvaluation (Eicher between years 2016 & 2019), fair valuation (like now) and undervaluation (Eicher between years 2010 & 2014)
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Old 13th May 2020, 08:15   #458
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Default Re: Guide: Investing in shares of the automotive sector

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Goody. Finally, Eicher Motors is trading at decent valuations. Eicher Motors stock has fallen 50% from the top (but then, so has Maruti). No explanation as such - stocks to tend get go through phases of overvaluation (Eicher between years 2016 & 2019), fair valuation (like now) and undervaluation (Eicher between years 2010 & 2014)
Right, so should make for a decent entry point, isn't it? Agree on Maruti, have been holding it for 10yrs now, seen the highs of 9700 & didn't sell any...now seeing the lows
Cheers

Last edited by RJK : 13th May 2020 at 08:23. Reason: More content
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