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Dear Reader,
Hidden Gem - May'14 research report is released by our team. Hidden Gem stock selected for the month is a small cap stock with total market cap of less than 200 crores.
While finalizing Hidden Gem stock of the month from auto ancillary industry, our team has followed Walter Schloss priniciple's. Walter J. Schloss (August 28, 1916 – February 19, 2012) was a well-regarded value investor, as well as a notable disciple of the Benjamin Graham school of investing.
Our Hidden
Gem stock of May'14 belongs to auto ancillary industry. The fortunes of the
auto ancillary sector are closely linked to those of the auto sector. Demand
swings in any of the segments (cars, two-wheelers, commercial vehicles) have an
impact on auto ancillary demand. Demand is derived from original equipment
manufacturers (OEM) as well as the replacement market. Margins in the
replacement market are higher than the OEM market. The OEM market is very
competitive and component manufacturers have to compromise on margins to
bag bulk orders. Moreover, delivery schedules and quality standards have
to be adhered to very strictly.
Lower labour
costs give Indian auto ancillary companies an absolute cost advantage. To put
things in perspective, ACMA numbers suggest that wage cost accounts for 3% to
15% of revenues for Indian manufacturers as compared to 20% to 40% for US
players. India's strength in exports lies in forgings, castings and plastics
historically. But this is changing with more component manufactures investing
in up gradation of technology in recent years.
The
automobile sector is cyclical and dependent on the growth of the economy and
improvement in infrastructure. Factors like increased public spending,
favorable interest rates and general improvement in per capita income point
towards higher demand for automobiles in the future. Also, government's
initiatives in the infrastructure sector such as the Golden Quadrilateral
project and NHDP (National Highway Development Programme) are likely to give
boost to four-wheeler sales especially CVs. Just to put things in perspective,
we expect CV segment to grow by 7% to 8%, 2-wheeler demand to increase by
around 12% to 15% and passenger car sales growth at 10% to 12% over the medium
to long term.
This is a positive for auto ancillary manufacturers.
Hidden Gem Stock of May 2014This is a positive for auto ancillary manufacturers.
While finalizing Hidden Gem stock of the month from auto ancillary industry, our team has followed Walter Schloss priniciple's. Walter J. Schloss (August 28, 1916 – February 19, 2012) was a well-regarded value investor, as well as a notable disciple of the Benjamin Graham school of investing.
The legendary Walter Schloss checked the stock on the following 4 criteria to determine if the stock merits a place in the portfolio:
• Zero or very low debt equity ratio
• High Promoter holding
• Dividend yield of at least 3%
• Stock purchase price lower than book value
This company satisfies 3 criteria's out of 4 and offer good upside potential with limited downside risk in near future.
Few facts which make this company a right investment candidate for long term:
1. Company is making investment of more than 100 crores in next 2 years on research and development to maintain its leadership position in domestic market and also to increase its export business.
2. Company offers high quality products and its facilities are certified with international standards to ensure product quality to meet international requirements and supplies its products to more than 15 countries.
3. Besides the domestic market, company is also focusing on increasing its exports (which offer huge growth opportunity) targeting 15% of its sales contribution by 2015-16.
4. Management has rewarded share holders by paying regular dividends consistently since last 6 years, dividend yield at current market price is above 3.
5. Promoters share holding is well above 60%. Moreover, promoters have increased their share holding significantly doing open market purchases during last one year.
6. In terms of valuation, company is trading at estimated PE ratio of 6.5 and considering increase in revenues and better operating margins, it offers good investment opportunity for medium to long term investors.
Grab our Hidden Gem - May'14 research report and invest small portion of your savings in it for long term.
On activation of your Hidden Gems subscription, you will also receive 2 freebies at no additional cost!
1. Saral Gyan 5 Hidden Gems - 5-Baggers in 5 Years Report - April'14 update
2. Saral Gyan eBook - "How to Grow your Savings?" worth Rs. 599.
Start investing systematically in Hidden Gems and Value Picks of stock market, to know more about Saral Gyan annual subscription services and discounts available on combo packs, click here.
In case of any queries or doubt, do not hesitate to write back to us.
Start investing systematically in Hidden Gems and Value Picks of stock market, to know more about Saral Gyan annual subscription services and discounts available on combo packs, click here.
In case of any queries or doubt, do not hesitate to write back to us.
Wish you happy & safe Investing!
Regards,
Team - Saral Gyan,
Saral Gyan Capital Services.
