Posts Tagged ‘Jaguar Land Rover


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, 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.


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.


Slowing China – Biggest Risk in writing Calls in Indian market

India is an evolving market and will continue to do so over the next 20 years. Foreign Institutional Investors (FII‘s) continue to dominate Indian market and their inflow continues to decide its direction. Last year, when FII’s pumped billions of dollars, market went up but this year when inflows are not so strong market is struggling to go up. Not many people invest in Equity markets and Mutual fund. The biggest problem I think, is the lack of stable long-term pension money. But over long-term with or without FII money Indian market will continue to go up and you don’t need any kind of BRICS marketing gimmick to confirm that. Structurally, we are in a bull market for next several years, but within that we will continue to overshoot and undershoot our long-term mean valuation of 15 PE. As option writer, I keep waiting for these overshoot and undershoot opportunities.

Last sunday there was an article in Business standard on slowing Chinese economy which might lead to sharp correction in commodities. As OTM Call writer, I would watch the situation in China very carefully since, rising commodity prices especially crude oil prices has been a major overhang on Indian markets this year. This quarter results confirm pressure on operating margins, rising input costs, rising interest rates and with slowing Indian economy, situation doesn’t look very good. But lot of this could change if there is some kind of slowdown in world’s biggest consumer of commodities leading to sharp pullback in commodities.

For June series I sold M&M 740 call, Tata Motors 1200, 1250 & 1300 Call. M&M quarter result clearly reflect pressure on margins, which were lowest in last eight quarters and might fall further. M&M Stock saw sharp reaction on result day. Tata Motors is struggling in domestic Commercial Vehicles (CV) segment, although Jaguar Land Rover (JLR) contributes close to 50% of overall sales. Given poor economic data coming from US and Euro zone,  if there is slight slowdown in JLR sales coupled with slowing growth of Indian CV market then Tata motors is struggling big time. But lot of things might change for companies like M&M which have strong domestic business (tractor segment), if there is sharp pullback in commodities. Inflation may also come down quite sharply and ease pressure on RBI to raise interest rates, hence need to be careful while writing calls of companies like M&M.

June 2019
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