Stock Idea: Ashok Leyland

Despite the impending fear of an interest rate hike and expectation of an excise duty hike in the Budget, Ashok Leyland has been moving strong on the bourses. If 2009 was a year dominated by the passenger cars sales surge, looks like 2010 would be year when we will see the commercial vehicle segments showing robust growth.
India’s second- biggest truck maker reported an over times YoY rise in truck sales in January 10’ at 7,871 units from 2,444 units a year earlier. And the god news is that it has reduced the number of vehicles in stock by 1,200 in January and this cut in inventory will continue into March too. As per the new plans, the company aims to hold no more than three weeks of stocks.
Its third quarter ended 31st Dec 2009 was its best for the entire fiscal. If it had begun Q1FY10 on a very somber note, the indications are that it will end the year on a high note. In Q3, sales and net profit have almost doubled from that we saw in Q1. There has been a significant improvement in the profit margins too. OPM for Q3 was at 11.41%, up from 10.82% sequentially and from 7.86% in Q1. NPM has also risen, from a meager 0.85% in Q1 and 5.62% in Q2 to 5.76% in Q3. Apart from the surge in sales, what has also helped is the consistent reduction in operating costs. Its interest costs, which were a matter great concern earlier are now significantly low.
For 9MFY10, the company’s net sales stood at Rs.4305.66 crore v/s Rs.5981.07 crore for 12MFY09. Net profit was at Rs.201.01 crore v/s Rs.190 crore. There is no doubt that the company would end FY10 on a very high note. But at the same time also keep in mind impact of the base effect, which will automatically make FY10 look extremely good.
Higher steel and tyre costs might prompt the company to hike its prices, which when compared with Tata Motors, is already on the higher side. It is expected to end FY10, with a NPM, which would be over 10%. The outlook looks bright but it has to watch out for increasing competition from M&M and MAN.
Source: Internet (premiuminvestments.in by S P Tulsian)

Auto Sector: CV Segment

If last year was about recovery in the auto sector, especially in the passenger car sector, this year the growth story would be about commercial vehicles (CV) sector. Trucks, which actually run the economy, were on the ebb for most part of 2009 but it was only after Q2 that it started showing signs of improvement. And that recovery is expected to get into a major flurry of growth in the coming months of 2010.
Why are we saying that CV segment is where the next growth lies?
•The sales figures of growing sales over the past few month. Tata Motors and Ashok Leyland, with a combined market share of 70%, reported a whopping rise in off take. Tata Motors sales jumped 116% and that of Ashok Leyland by 136% in Nov 09’. In Dec 09’, Tata Motors sold 33,519 CVs v/s 14,056 units in Nov 09’ and Ashok Leyland sold 6099 units in Dec 09’ compared to 4695 units in Nov 09’. And the figures in the ensuing months is expected to get only better.
•The sales have surged due to the basic fundamental change in the economy. The robust 7.9% GDP growth and with expectations of ending the fiscal with a growth of 6.5% to 7% indicates very good economic recovery. That in itself is an indication that things are moving up.
•The strong GDP number also indicates that momentum is picking up in the manufacturing and mining sector. And this means more demand for trucks. There is also a sharp rise in demand and movement of cement and this too is expected to add to the demand for trucks.
•Another major factor which will help boost the demand is the Govt going all out to speed up delivery of buses under Jawaharlal Nehru National Urban Renewal Mission. 2500 buses have to be supplied by Tata Motors and Ashok Leyland before end of March 2010 to Delhi Transport Corporation.
•Truck makers – Tata Motors, Ashok Leyland and Volvo have all hiked or announced intentions to hike their truck prices as soon as the year 2010 began. This was mainly on account of rise in steel prices, a major input, which ahs gone up by $60-80 to over $550 a tonne in the past two months. Demand is not expected to be dampened by this move as the economy is on the go right now. Plus after having sat out the past year on low demand and even temporary plant shut downs, the CV makers are now raring to go.
•Everyone is expecting a hike in interest rates and more cost hikes are also expected, given the rising cost of raw materials. To probably beat that, one could see more buying of trucks till end of March 2010.
•And the CV makers are also looking at a very robust year ahead, which is why Tata Motors, Ashok Leyland, Eicher, Volvo, Daimler and Mahindra-Navistar are all lining up new launches. The market leader Tata Motors has lined up 15 new CV launches over the next 12 months. Mahindra Navistar, the JV company of Mahindra & Mahindra, has unveiled two new trucks and aims to have leadership position in the 25-31 tonne category within the next 6-7 years. VE Commercial Vehicles, the JV between Volvo and Eicher, launched one of the costliest and advanced trucks with a price tag of Rs 85 lakh, before taxes.
All in all, if 2009 was the year of the passenger cars, 2010 will surely be the year of the Commercial Vehicles.

Source: Internet (By Ruma Dubey)

Stock Idea: TVS Motor Company Ltd

TVS Motor Company Ltd— BUY—59—INR
Sector — Automobiles
Regd.Off.— Jayalakshmi Estates, Haddows Road, Chennai - 600006
Listed — NSE, BSE.
Company overview—
Company was incorporated as Indian Motorcycle Pvt. Ltd. on 15th July 1982 and it was converted into a public limited company on 12th January 1984. Mr. N. Krishnan promoted it in collaboration with Suzuki Motor Co. Ltd. Japan. Company entered into a technical know-how and assistance agreement with Suzuki Motor Co. Ltd., of Japan. As per the terms of the Collaboration, Suzuki agreed to furnish complete technical information and know-how, trade secrets and other data. In 1992 company launched two new models of motorcycles "Samurai" and "Shogun". In 1993 company launched a new model of moped viz. "TVS Scooty". TVS-Suzuki, a joint venture between the TVS group and Suzuki Motor Corporation, Japan was the first company to launch a 100-cc motorcycle in the Indian market. Company also launched its new moped model, the XL Super. Its new generation state-of-the-art four-stroke scooter "Spectra" was launched in spectacular fashion at the TVS Millennium Show on October 1 in New Delhi. In 2000, Company launched Suzuki Fiero and later it launched its indigenously developed 4-stroke motorcycle, TVS Victor 125 cc. Company launched 4 new mobikes including a new brand 100-cc mobike called the Centra and Fiero F2 and Scooty Pep models. Company has tie up with SBI, UBI, Andhra bank and other banks for scooter and Motorcycle financing. The subsidiaries of the company are namely Sundaram Auto Components, TVS Motor Singapore, TVS Motor Company (Europe), PT TVS Motor Company, Indonesia.
Products & Services—
Company is one of the largest two-wheeler manufacturers in India. TVS Motor currently manufactures a wide range of two-wheelers from mopeds to racing inspired motorcycles. In Motorcycles it has various brands like Apache RTR, Fiero, Metro, Victor, Flame SR 125, StaR City, Sport etc. In Variomatic Scooters it has Scooty Streak, Scooty Pep+, Scooty Teenz etc. and in Mopeds it has TVS XL Super, TVS XL Heavy Duty. Company also provides various variants of these models for different class of consumers. Company has two state-of-the-art manufacturing plants in Mysore and Hosur.
Company has achieved world class levels in quality as well as improvements in design and processes; the company has formed special task forces to monitor quality related performance. The basic tenets of TQM, including Daily work management, Policy management, Kaizen (continuous improvement), Training and standardization are followed across the organization. TVS Motor Company awarded the prestigious and coveted Deming Prize, instituted by JUSE (Union of Japanese Scientists and Engineers). Company was also awarded the prestigious "TPM Excellence award - First category" by Japan Institute of Plant Maintenance (JiPm), rated as the benchmark in TPM excellence in India.
Company has one of the most extensive networks with over 541 dealers, 2500 Customer touch points and 1500 authorized service centers. Currently, more than 400 engineers work on developing radically new products and cutting edge engine technologies. R&D team has developed the revolutionary Variable Timing Intelligent (VT-i) Engines, one of the most innovative technologies developed in the two-wheeler industry.
Recent Development—
TVS Motor is planning to launch the country’s first motorcycle with automatic clutch by the end of this calendar year. It is learnt that this motorcycle will spare the rider of constantly having to engage the clutch to shift gears, which would be a welcome relief in choked traffic conditions. Only the gears need to be changed and there would not be any compromise on pickup or speed so that thrill and joy of biking are intact. Sources say that the company has been working over the last 18 months on this motorcycle.
Valuation—
At current market price, stock is trading at 12.4 P/E multiple of its FY2010 Estimated earnings. We recommend investors to buy "TVS Motor" with medium to long term investment horizon

Source: Internet (Valuenotes by Abhishek Jain)

Stock Idea: Ashok Leyland Ltd.

Ashok Leyland Ltd— BUY—52—INR
Sector — Automobiles
Regd.Off.— Gateway Building, Apollo Bunder, Mumbai, M.H., 400001
Listed — NSE, BSE.
Company Overview—
Company was incorporated on 7th September 1948 at Chennai. In 1948, company was set up for the assembly of Austin Cars. British Leyland and Ashok Leyland commenced manufacture of commercial vehicles in 1955. In 1987, the overseas holding by Land Rover Leyland International Holdings Limited (LRLIH) was taken over by a joint venture between the Hinduja Group, the Non-Resident Indian transnational group and IVECO. (Since July 2006, the Hinduja Group is 100% holder of LRLIH). In the journey towards global standards of quality, Ashok Leyland reached a major milestone in 1993 when it became the first in India's automobile history to win the ISO 9002 certification. The more comprehensive ISO 9001 certification came in 1994, QS 9000 in 1998 and ISO 14001 certification for all vehicle manufacturing units in 2002. It has also become the first Indian auto company to receive the latest ISO/TS 16949 Corporate Certification (in July 2006) which is specific to the auto industry. In collaboration with Leyland Vehicles, Ltd., the Company embarked on a program of manufacture of integral buses. A technical collaboration agreement was entered into for the manufacture of synchromesh transmissions to the designs of Azhnradfabrik Friedrichschafen AG of West Germany. Company entered into an agreement for a joint venture in Sri Lanka for the assembly and progressive manufacture of Ashok-Leyland vehicles. In 1998, company introduced "The Panther", a low floor bus, which has been indigenously designed to cater to the needs of the common masses and is based on the parameters set by the Central Institute of Road Transport and the Association of State Road Transport Undertakings. The ministry of defense’s vehicle factory in Jabalpur has manufacturing agreements with Ashok Leyland. Company supplied buses to Afghanistan as a part of Indian Government's Assistance to the war-ravaged Afghanistan. In 2003 it got $46 million truck supply contract from the United Nations also. Company has collaboration agreement with ZF of Germany for local manufacturing of ZF's 9-speed synchromesh gearbox. Company has BS7799 certification for information security management system. Company has a joint venture (JV) with the US-based agriculture equipment maker John Deere for manufacturing and marketing construction equipment. The joint venture will initially manufacture backhoes and wheel loaders and will market these in India and abroad. The range will subsequently be expanded to include a full line of construction equipments.
Products & Services—
Company is working from last 6 decades as an Indian transport solution company. Company’s product portfolio includes buses, trucks, special application vehicles and engines. In buses, company has different brands like Viking BS-I, Viking BS-II, 12 M bus, Cheetah BS- I, Panther Luxury, Cheetah BS- II, Stag BS-II, Vestibule Bus, Airport Tarmac Coach, 222 CNG Bus, Lynx, Double Decker etc. In Trucks, it has 4 X 2 Haulage models, 4 X 2 multixled Tippers, Multiaxle Vehicles, Tractors and Ecomet etc and some other loading models for construction and mining sector. Except this, Company is the reputed supplier of defense vehicles for Indian army. Company has long been in the manufacture of defense and specialty vehicles. In special vehicles it has Rapid Intervention vehicle 4 X 4, Hippo Tractor, Beaver Tractor, Beaver Haulage, Hippo Haulage, Stallion MK III Tipper, Hippo Tipper etc.
From 18 to 82 sit double-decker buses, from 7.5 tonne to 49 tonne in haulage vehicles, from numerous special application vehicles to diesel engines for industrial, marine and genset applications, Ashok Leyland offers a wide range of products. Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The 5,00,000 vehicles company have put on the roads have considerably eased the additional pressure placed on road transportation in independent India. In the populous Indian metros, four out of the five State Transport Undertaking (STU) buses come from Ashok Leyland. Some of them like the double-decker and vestibule buses are unique models from Ashok Leyland, tailor-made for high-density routes.
Valuation—
At current market price, stock is trading at 12.5 P/E multiple of its FY2010 Estimated earnings. We recommend investors to buy “Ashok Leyland” with long term investment horizon.

Source: Internet (Valuenotes by Abhishek Jain)

Focus on Auto Sector

Car and bike sales for the month of April 2009 have gone up. And based on this, Mr.Gupta has been buying up shares of auto component makers and most of the front line auto stocks. And it is not just Mr.Gupta who has been buying. There are many like him who have become bullish on the auto sector. There are also quite a few who believe that this rise in April sales marks an end to the slowdown. They feel its time to invite the bulls over on Dalal Street permanently. But is that so? Is this optimism right?

Absolutely not! This is like celebrating the arrival of the baby the moment the news of pregnancy is declared. Yes, the news is good but it’s too early to celebrate. Mere surge in car and bike sales is not enough. The real mover of the economy is the truck sales. So unless and until the truck manufacturers declare a surge in their sales, there is really no recovery.

Why so much significance to truck sales? Well, it is the trucks which move goods from place to the other. And goods will start moving once industrial activity picks up and demand shows a rise. That in the right sense would mark the kick start of economic revival. But right now, that is not happening. Falling truck sales means that demand is low and there is no need for additional trucks to move goods from one place to the other. So the revival is yet to really happen.

As per figures released by the Society of Indian Automobile Manufacturers (SIAM), motorcycle sales in the country during the month was up 12.11%. Total two-wheeler sales in April rose by 13.71% and domestic passenger-car sales increased by 4.20%. Last year around this time around this time, the gloom in the auto sector was just about beginning to spread. The pile up of inventory, rising raw material costs and falling demand started taking its toll. But this time around, the first month of fiscal 2009-2010 has been good, especially for the car makers. Except for Mahindra Renault, which showed a 68% drop in its sales growth for April, all others have reported a positive growth. Maruti sales was up 9%, Hyundai was up 3.5%, Honda 7.5%, M&M by a sharp 35%, Hero Honda by 29.5%, TVS by 3% and Yamaha by 48.3%.

Commercial vehicle sales were down 11.25%. Ashok Leyland reported a 69.33% decline in commercial vehicles sales in April. Its domestic sales for the month stood at 1,615 units against 5,549 units in corresponding month last year, down by 70.90%. Tata Motors, for the first time since Sept 2008, has registered a YoY increase in April in LCV sales though M/HCV sales were down 28%. So recovery is yet to really happen, that’s the writing on the wall.

What does the rise in car and bike sales mean? Does it not indicate a revival in demand? Yes, it does mean that people have started buying cars and bikes but that buying alone is not enough for the companies and the economy to bounce back. It is good news but not good enough.

And in case of auto component makers, it would take a while for the perk up in demand to percolate down to them. It would be too early to stock up on these auto component stocks. Well, if you have the holding power, you can stock up. And in that context, you can stock up on almost any good stock as whatever goes down does come up, some time or the other. That’s the cycle of life.

Source: www.premiuminvestments.in (By Ruma Dubey)