Posts Tagged ‘Automotive industry

03
Jun
12

Auto companies flat May numbers..

Auto companies across the board declared poor may 2012 sales number. Market leader, Maruti Suzuki total sales declined 5% to 98,884 units. It goes without saying that economic slowdown, high interest costs and high fuel prices especially petrol is hurting Maruti. Majority of Maruti current capacity is petrol and after recent sharp petrol price hike, company will take some time to adjust to diesel vehicles growing demand. This fact is corroborated by drop in its mini segment sales whereas diesel versions of Swift and Dzire continued to show sales growth. In fact in June, automaker total sales could drop further more.

Tata Motors domestic sales for May stood at 20,503 units versus 19,401 units last year (growth of 5.68%). But its Medium & Heavy commercial vehicles saw dip in sales. Since JLR contributes more than 90% profits of Tata Motors combined profit, JLR May numbers would be far more important. Luxury automaker numbers would decide whether Tata motors stock would go down below 200 or not. M&M was an exception and its overall may sales registered growth of 26.7% over last year. Tractor sales were again sluggish and rose only 0.3%.

In one of my previous post on Tata Motors https://writingoptions.wordpress.com/2012/06/01/tata-motors-stock-hammered-down/, I had written about being cautious in selling Tata Motors OTM calls. But on Friday, after seeing sluggish numbers I had started selling calls aggressively. I have also sold Maruti 1300 June series calls. Given the sharp breakdown in Maruti stock, I might also sell 1250 calls on any rebound. One thing that has to be kept in mind is possibility of sharp rebound in Tata Motors if market stabilizes. It has fallen very sharply after Q4 results.

01
Jun
12

Tata Motors stock hammered down..

Tata Motors share price has fallen 17.7 percent in last 2 days from its intra-day high of 283.1 on 29th May. The auto-maker declared its Q4 and full year results on 29th May. JLR contributes majority of Tata Motors net profit and any dip in JLR margins would be detrimental to Indian auto maker’s fortune. Luxury automaker’s operating margins for the quarter were 14.6 percent as compared to 17-17.5 percent of analyst expectations.

I think more than results, it was a clear case of over expectation. Stock was over-owned and every major fund had been bullish on the stock. So, in the short-term it was an overreaction and the stock was hammered down. It would take some time for Tata Motors stock to stabilize and move back up.  I sold a few OTM calls of June series, but I am not very aggressive in selling calls. Main reason for this is that in the short-term stock is oversold and also JLR May numbers are due around mid-month. I would like to see JLR May numbers after not so good April numbers. Moreover, June month is event heavy and we could see movement both ways. We might even see action from RBI after shocking Q4 GDP numbers.

09
Jan
12

Bajaj Auto December numbers..

Bajaj Auto posted lower than expected sales figures for December. The company shares fell sharply after sales figures announcement.The two wheeler company sold 305,690 units showing growth of 10 percent over the last year. It was below market expectations. Two wheeler companies like Hero Motocorp, Bajaj Auto and TVS Motors were trading at premium valuations as compared to Four wheelers like Maruti and Tata Motors. This premium was given on account of expected double-digit growth. But if the two-wheeler companies are also struggling and showing growth in single digit, then the premium valuation is unjustified.

I had sold Bajaj Auto calls aggressively last week. I don’t think company shares can rise sharply 13-15% from current levels in January series.

18
Oct
11

Maruti trouble continues..

Maruti strike continues. Production across four plants in Gurgaon and Manesar has come down to 1600 units from 5000 units. On Friday and Saturday there was zero production. Few days back there was news article in BS which reported that Maruti along with component vendors has incurred combined loss of 3000 crore. On 13th October, Haryana government labor department declared strike illegal. High court has asked protesting workers to vacate company premises. Workers have obeyed high court orders and decided to vacate company premises.

There are lot of automakers and auto component companies clustered around Gurgaon belt. This region has seen lot of labor troubles in recent past. This makes you think that problems are deep-rooted. Lot of money due to real estate is flowing around this region and workers are getting greedy because of that. There seems to be resentment with lifestyle difference when workers goes around the region. In today’s BS there was one article, http://business-standard.com/india/news/with-agefamilyside-workers-show-no-signgiving-in/452956/. When I read these kind of articles, I become more confident that this strike is not going to end in a hurry. Yesterday ex-MD of Maruti, Mr. Jagdish Khattar said on CNBC-TV18 that average age of Manesar plant worker is around 24-25. Even their union leader, Sonu gujjar is 27 years old (http://articles.economictimes.indiatimes.com/2011-09-17/news/30169237_1_manesar-plant-maruti-s-manesar-sonu-gujjar). Some of the workers are young and there might be lack of maturity on their part. But obviously there would be other side of story and some of the things workers are saying might be true.

For Maruti, this strike couldn’t have come at a worse time. Industry as a whole is struggling with slow growth in FY12. SIAM has cut the car industry growth forecast to 2-4% for FY12. During festive season, company would have hoped to recover some of the lost ground. Few days back Hyundai launched its small car e-on in direct competition with alto. This will put pressure on pricing power of Maruti. Overall, things are not looking good for country’s largest automaker.

Sometime back there was one news article, according to which Volkswagen might go for hostile takeover of Suzuki. This would automatically trigger open offer for Maruti Suzuki which is 51% subsidiary of Suzuki. Volkswagen holds 20% in Suzuki corporation and had JV with it. This JV has been called off and there are rumours doing round about hostile takeover. I doubt if this hostile takeover would be successful with Japanese company. But in case Volkswagen decides to proceed with hostile takeover, it would be biggest risk in writing calls of Maruti. Although on 14th October, Suzuki served Volkswagen legal notice for breaching their JV, http://www.ft.com/intl/cms/s/0/084dfeda-f60c-11e0-bcc2-00144feab49a.html#axzz1aoePNSCg. Given the cultural differences, I don’t think Volkswagen will attempt hostile takeover of Suzuki. Now I am more confident about writing Maruti November series 1200-1250 calls. If strike is called off then there would be relief rally and that would be right time to write Maruti calls.

03
Jul
11

Trouble for Automakers..

Car sales growth slows to two years low was the major headline across business papers yesterday. Combination of higher interest rates and fuel prices is hurting automakers’ sales. In Q4 FY10, companies were struggling with higher commodity prices and its impact on bottom-line. Although commodity prices have come down from their highs, now automakers are fighting with slow sales growth. Companies are bringing down their sales forecast with market leader Maruti slashing it from 13% to 8% this year.

Among the listed players, Maruti and Tata Motors are particularly struggling. Maruti had lower domestic sales at 70,020 units (declined 3.8% from 72,812 last year) in June mainly on account of annual maintenance shutdown at Gurgaon and Manesar plants. Maruti also suffered on account of 13 day strike at its Manesar plant in June.  The market leader is facing stiff competition from Toyota, Ford, Nissan’s recent launches. In one of my earlier post (https://writingoptions.wordpress.com/2011/06/15/maruti-follow-up/), I had mentioned about selling Maruti 1300 call in June series. In July series also I am looking to sell few OTM calls in Maruti, since I don’t expect Maruti share price to move substantially higher in this series. Maruti may not go down further from these levels, so it doesn’t make sense to go short at these levels.

Tata Motors is another listed player which is struggling with falling commercial vehicles (CV) and passenger car sales, particularly in domestic market. June domestic sales fell by 21% to 21,993 units from 27,811 units last year. JLR is silver lining with strong showing in China and other emerging countries. Tata Motors share price has come down sharply from 1150 odd levels since its Q4 results. I won’t short Tata Motors but will sell OTM calls. Just like Maruti, I don’t expect Tata Motors’ share price to rise much higher in July series.

M&M is different ballgame all together. June domestic sales for M&M grew by 21% to 16,053 units. One can say M&M has advantage of lower base, but still company tractor sales are growing rapidly. In Q4 results, M&M said they were struggling with margins on account of higher commodity prices. M&M should benefit this quarter since commodity prices have come down from its peak. M&M also fell after its Q4 quarter results, but recovered most of its lost ground. I won’t be comfortable writing M&M calls at this point of time.

15
Jun
11

Maruti follow up

In my previous post https://writingoptions.wordpress.com/2011/06/13/opportunity-maruti-dealers-have-inventory-for-28-days/, I had mentioned about selling Maruti 1350 Call. I wanted to wait for RBI rate hike decision on 16th June before writing 1300 Call, but yesterday there was sudden spike in 1300 call premium. Returns from Maruti 1300 call at 4.75% in remaining 17 days of June series, became too compelling for me to go ahead and write this call. Its high risk trade, but returns are also high. There might be some spike in share price if strike at Maruti is called off, but I don’t expect share price to rise too much.

13
Jun
11

Opportunity: Maruti dealers have inventory for 28 days

As soon as I opened today’s BS newspaper and saw the headlines http://www.business-standard.com/india/news/slowdown-clouds-darken-over-india-inc/438865/, I sensed my new opportunity.

New Index of Industrial Production (IIP) series figure released last week, Q4 FY11 GDP figure, May Auto sales figure, HSBC Purchasing Managers Index (PMI) – all point in one direction of slowing economy. All auto-makers were struggling with margin pressure on account of rising commodity prices, but with rising interest rates, signs of demand destruction are also quite visible.

Passenger car segment in India is highly competitive. Today country’s largest car maker, Maruti Suzuki’s chairman Mr. RC Bhargava said, “company dealers have inventory for 28 days”. It clearly shows that the company is struggling with sales growth and consumers are deferring the decision to buy a car. As if, all of this was not enough car-maker is also struggling with strike at its Gurgaon plant for past one week, leading to several crores of loss every day. Given all the concerns around automakers in general and Maruti in particular, I don’t expect stock price to cross 1300 level in a hurry. In case RBI does not increase repo rates in its 16th June review, there might be some rally in rate sensitives including Maruti. I have sold 1350 call and looking to sell 1300 call for June series, just waiting for the RBI meet…




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