Posts Tagged ‘Maruti Suzuki

24
Jul
12

Maruti fresh labour troubles…

Maruti faced a fresh set of labour unrest and violence at its Manesar plant. One senior HR person died and several other management staff got injured in this violent attack from workers. 97 workers have been arrested so far by the police and several others are absconding. Last year also auto major had its share of strike by workers, but they were mainly peaceful. What triggered this suppressed anger of workers into such violence is a mystery.

Maruti declared lockout at its plant on Saturday. Manesar plant is important for Maruti as it rolls out Swift & Swift Dzire. As per today’s BS report (http://www.business-standard.com/india/news/joint-probe-into-maruti-riot-as-lockout-costs-firm-rs-600-cr/481276/), cumulative revenue loss out of this lockout till now is Rs 600 crore. As per today’s TOI report, Maruti management is talking about mass firing of workers who were involved in this violence act. India’s largest auto-maker has said that plant will remain closed till investigation into the case is over and they are able to get into the bottom of this labour unrest.

Bloomberg analyst mean EPS estimate for FY13 is Rs 85. Current share price of 1080 discounts EPS estimates by 12.7 times (forward P/E 12.7). one basic flaw in this P/E multiple is that one is not sure about current year EPS estimate of 85. No body is sure till when Maruti lockout of Manesar facility will last. Also, given the fresh concerns on Euro crises, yen has appreciated sharply. Yen appreciation impacts Maruti margins negatively. I think this presents opportunity on both sides, short and long. I have sold few July series calls and started selling August series calls. Below 1000 Rs,  Maruti will make for good long-term buy. While selling calls and shorting auto-major stock, one has to remember that it is high beta stock and moves both ways sharply. After touching its low of 900 in December, it rallied sharply 55% in 3 months to touch levels of 1400 in March.

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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.

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.

23
Oct
11

Short Strangle in Crompton Greaves

Crompton Greaves does it again in Q2 2011. Net Profits were down 46% YoY to Rs. 116.6 crore, Top line grew 13% YoY to Rs 2705.53 crore. High depreciation and higher tax rate pulled bottomline numbers down, which were below street expectations. Order inflow growth remains muted, which is the key concern across  the capital goods sector. Even L&T showed 21% YoY drop in order inflows in Q2 results yesterday.

After Q1 FY12 results also I had written one post on the company poor performance and corporate governance, https://writingoptions.wordpress.com/2011/07/22/crompton-greaves-new-opportunity/. Before announcing Q2 results, Crompton stock had formed base around Rs. 140 and had moved to 165 odd levels. Management  bought some shares around that level and the company also decided to sell its Rs 270 crore aircraft after large investor protests. Crompton stock closed 12.33% down after its results. I have formed short strangle in Crompton Greaves, sold 110 put and 170 call. Apart from this strangle, I have also sold OTM calls. It will be quite a while before company stock will stabilize. As per new estimates, Crompton will report Rs 9 EPS for FY12. At 140, stock trades at 15.5x its FY12 per share earnings. I don’t think you will buy Crompton at 15x in this market. I mean there are better stories in  the market, trading at lower multiples than Crompton at 15 PE. Although I have sold Maruti OTM calls, but automaker is trading at lower multiples than Crompton and given a choice I would buy Maruti than Crompton.

23
Oct
11

Maruti Strike ends..

Finally, Maruti strike has been called off after 14 days. Agreement was signed between Management, workers and  the Haryana state government. Apart from a 30 odd workers, all workers including 1200 casual workers have been taken back by the  management. Few days back, I had written about Maruti troubles https://writingoptions.wordpress.com/2011/10/18/maruti-trouble-continues/.

I was quite active in writing Maruti OTM calls yesterday. I also bought protection by buying lower level call. I am not confident about the  sustained share price rise in Maruti. Yen appreciation, growing competition and slowing sales growth in FY12 will impact company stock performance. I think the  company will find it tough to cross its 200 day moving average (DMA).

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.

07
Jul
11

SBI follow up..

In my earlier post I had mentioned about selling SBI 2600 call for July series (https://writingoptions.wordpress.com/2011/07/03/sbi-fibonacci-retracement/). Yesterday I covered my sold SBI 2600 call at a slight loss. SBI crossed 2440 levels and even on a down day it was up 1.5%. I felt uncomfortable and cut my position. At this point of time I am not sure about SBI movement, but in case SBI goes up further from here than I might re-look at selling SBI calls.

In last 10 days India has seen lot of FII flows, close to USD 2 billion (http://business-standard.com/india/news/fiis-head-back-as-macro-headwinds-ease/441712/). Significant amount of this money has obviously gone into large caps. Some stocks like SBI, Tata Motors had lot of shorts which got covered. I have to be careful while writing calls of some large caps. From next week, Q1 FY11 results will start pouring. Its better to wait for cues from result season and then proceed.




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