Auto industry is going through one of its worst periods. The passenger vehicle sales are down significantly and even the 2W sales are down.
However, we are looking at this downturn more as an opportunity. A lot of really good companies in the auto-ancillary space are down 70-80% from their highs and are trading at historically low valuations.
We are therefore especially focused on auto components supplier and that too in 2W space. Another point that we are keeping in mind is that company’s products should not get disrupted by electric vehicle adoption and should rather benefit from the same.
Why 2W space? Because the history suggests that the slowdowns in the 2W segment are shorter (a year or so) and less pronounced.
Source: Edelweiss Automobiles Jul’19 report
Thus, keeping the above factors in mind, we recently shared an opportunity with all our premium members on a company that is segment leader, growing despite the slowdown and trading at historically low valuations. The new recommendation is also part of our Model portfolio of stocks.
If you missed investing during 2008-09, 2012-13 market corrections, you shouldn’t miss out on the latest opportunity the market is serving us in 2019. You can invest in our latest pick and make the most of it by subscribing to Premium Membership. Please register HERE
Some important points about the company are as below:
- The stock is down more than 75% from its highs
- The current valuations are historically low on almost all the parameters: less than 1 time book value, less than 9 times earnings, etc
- In the last 7 months the promoters have bought significant quantity from the market. Their average purchase price is around 25% higher than our recommendation price
- The company is the largest player in the segment and its clients account for more than 50% of the 2W sales in India
- Barring 1 year, the company has consistently outperformed 2W industry sales growth by a wide margin.
- The company has consistently clocked more than 15% growth in sales on year on year basis.
- Despite the slowdown in 2W volumes, the company is likely to sustain double digit growth rate on the back of 2-4x increase (over the years) in realizations in 50% of its product segment.
- The dividend yield is more than 2%
Stock market is peculiar…sometimes it is too exuberant and offers an asset worth Rs 100 at Rs 120-150 and sometimes it becomes too despondent and offers the same asset worth Rs 100 at Rs 40-60.
Our returns on investments are therefore determined by when we buy the stock: at 40-50 when the market is depressed or 120-150 when the market is elated.
Get access to our latest pick by subscribing to one of our Premium Memberships. The new recommendation is also part of our Model Portfolio.
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We strongly care for and look for association with like-minded clients and would like to extend our invitation to the investor:
- Who looks at ownership of stocks as partial ownership of businesses?
- Who is patient and serious about exploring high quality businesses?
- Who understands the fact that stock prices are the slave of earnings and sooner than later they start reflecting the same.
- Who doesn’t have a phobia of watching his stocks go down over the short term?
- Who is patient enough to hold a good undervalued stock for a period of 1 year and more?
- Who does not get enough time to research.
- Who researches and invests himself, however looking for a source of good research analysis on stocks.
SEBI Registration No. INH100001690
Positive – Expected return of ~15% + on annualized basis in medium to long term for investment recommendations and in short term for Special situations
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock
% weightage – allocation in the subject stock with respect to equity investments
Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
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Disclosure (SEBI RA Regulations)
Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – No
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