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Archive for the ‘Auto’ Category

The streets are filled with idiots, and Volkswagen cars

Posted by fairval on December 20, 2015

Janhavi Gadkar got her license back, reported media. So potentially one more id***on the road. I have found the whole JG episode beyond comprehension. Here is a lawyer (should bloody well know the law better than others), who is 35 years old (not a juvenile), and a woman (sounds sexist, but aren’t women supposed to be more law abiding?).

So this senior corporate lawyer from Reliance gets drunk with the CFO of Reliance on a Friday night and mows down a taxi at reportedly 120 kmph and kills 2 people. The car she is driving is an Audi, so nothing happens to JG. Great endorsement for safety features on an Audi, but 2 persons died.

Volkswagen seems to be wanting to put its emission controversy behind it, given the recent spate of ads. Earlier, VW was found to have put in a system of rigging emission data on some its cars. Why? Because the goal of making fast cars isn’t quite in sync with having low emissions.

The common thread between JG and VW: Speed and fast cars. Car makers all over the world, and Germany in particular, are highly focussed on speed. German cars are the epitome of luxury car industry. And what do they stand for – speed and safety. The later though is a necessary evil – if you are making a fast monster, you have to put in features to ensure that the idiot driving it doesn’t kill herself or himself (the other party be damned).

The 2 problems with the car industry – cars kill people and cars cause pollution – are a direct result of the focus on speed. This is where regulators need to step in. Several things can be done: Put in regulation to cap the top speed of cars at 80-100kmph; or put a cap on engine sizes. Noise pollution is another big evil – that should be tackled by putting in metered horns – so say 1 min of honking costs say Rs 100. To honk, you need to ‘charge’ the horn. That should cut down noise, or atleast generate revenue for the government.

Car makers will still want to sell luxury cars – but that can be via other means. Let them innovate on other features like design, entertainment, connectivity or just bling. And they can give schemes like ‘lifetime honking free’.

PS: One issue I have missed reading in the media – is JG still employed in Reliance? The CFO certainly is.


Posted in Auto, What was that Again? | Tagged: , , | Leave a Comment »

FY14: 3rd sub-par year for passenger vehicle sales

Posted by fairval on January 10, 2014

FY14 is likely to see passenger vehicle sales end negative. Sale growth has been pretty anemic in the previous 3 years also, making it the third year in a row where volume growth will be less than the long term trend rate of 12%.

Since 1996, this has happened only once before, in the FY01-FY03 period; that time the bite was more vicious. Never have we seen 4 years of sub par sales. Will FY15 revert to > 12% volume growth?


Posted in Auto, Trends | Tagged: , , | Leave a Comment »

Indian FMCG MNCs getting ripped on royalty

Posted by fairval on March 27, 2013

Royalty rates have been going up in MNCs operating in India. The table below from a Nomura report shows prevailing rates amongst sundry FMCG and other companies.


5% of sales appears to be rather high for FMCG companies which certainly don’t spend nowhere near that in R&D. Here I am assuming royalty is more to do with paying up for global parent’s R&D support. Can’t be for branding, since local cos anyway spend more than 10% of revenue on advertising. Can’t see how a Colgate India benefits from a Colgate ad in the US.

R&D spends in FMCG appear to be low. Indian companies like Marico and Dabur spend less than 0.5% on R&D.This could be lower than what global cos spend.

Unilever Plc spends Euro 1bn annually on R&D, or about 2% of sales. Further, its local sub HUL spent 0.7% on its India P&L on R&D in FY12. So how much of global R&D in Unilever is happening for India hard to say, since the India ops is anyway spending on this account. Also, cost of doing R&D in India is low, so 0.7% in India is perhaps equal to 2% abroad. Further, the Indian arm could well be doing some work from which the parent benefits.

Colgate Palmolive spent $259mn on R&D in 2012 on revenue of $17bn, or about 1.5%. In India, it spend 0.22%. The global parent is charging the Indian arm 5.2% as royalty, which clearly appears to be excessive then.

Maruti Suzuki spends 1% of its India revenue on R&D, and is charging Indian arm 5%. In auto industry, R&D spends are far higher compared to FMCG. Suzuki Motor Corp spent Y109bn on R&D in FY12, on global revenue of Y2512bn, or about 4.3% of sales. Dailmer AG spent Euro 4.8bn on R&D in 2012, or about 6.7% of its revenue.

So high royalties are understandable in auto, cetainly not in FMCG. Bosch could charge a lot more than it charging. Bosch India spent 1.4% on R&D, and paid 1% royalty. The global parent could well be spending more than 10% on R&D, Bosch is reportedly most R&D focussed automotive company in the world.

Posted in Auto, FMCG, Trends | Tagged: , , , , , , | 1 Comment »

A new method to calculate relative PE

Posted by fairval on January 17, 2013

When analysts make their price targets, what PE to use (this being the most common metric) is often quite arbitrary. We have used the following method in a recent report. This is a report on Sona, an auto ancillary. About 45% of its sales are to Maruti, so i decided to derive its PE in relation to Maruti.

Sona should clearly trade at a discount to Maruti, but how much? To give a method to this, we compared cumulative profits over last 10 years. This should be a long enough period to arrive at a assessment of relative profit generating (and therefore wealth creation) abilities of the two businesses.

Here is what we got. FY03 is indexed to 100. Adding up profits, Maruti made about 3x the net profit as compared to Sona. (This is not an absolute number, but an indexed number).  It seems fair to say that Maruti’s PE should be 3x Sona. Brokers currently value Maruti at around 18x FY14. Sona could well get 6x FY14.

If this were true, Sona appears a good buy at current price. And with 5% dividend yield currently, downside is protected.

A metric for relative PE calculation

Posted in Auto, Stock Ideas, The Science of Investing, Valuation | Tagged: , , , | Leave a Comment »

Good reporting example – Motherson Sumi

Posted by fairval on March 15, 2012

Motherson has been declaring its 5 year performance goals. This is the past 2 —

Past 5 year targets

Of course, this would make no sense if future targets were not declared. This is the current 5 year plan it is working on —

Current 5 year target

The co should be able to achieve the revenue goal, in others it may struggle given current global scenario. However, the market seems to have a lot of faith in the management, given the way high valuations the co gets now. Given that it disclosed and made its targets, seems deserved

Posted in Auto, Corporate Governance | Leave a Comment »

Bharat Forge – an amazing PR story

Posted by fairval on May 24, 2011

Bharat Forge is one amazing PR story. The company has nothing particularly of note in last several years, yet continues to command high valuations, and media adulation.

The cumulative net profit this company has made in the last 4 years is about Rs 590 crore, or say Rs 150 crore per year on an average. Yet, it has a market cap of  about Rs 7100 crore.

More than the valuation part, it is this huge reluctance the company has in talking about its international operations. It is very hard to find one word on international operations in its quarterly releases. All the company wants to talk abt is stand alone operations (which is the Indian part). And remember, this was the company being feted as one of India’s first MNCs. Really? Its international operations havent made money in several years.

Posted in Auto, Valuation | Leave a Comment »

Wisdomsmith Auto Anc Picks

Posted by fairval on June 30, 2010

Wisdomsmith Auto Ancillary Picks

Wisdomsmith’s auto ancillary recommendations have worked well again. The revised list of 9 June has 2 stocks – Rane Madras and Swaraj Engines – already performing well, within a short span of 3 weeks.

Others like Munjal Auto and LGB will perform too.

Posted in Auto, Stock Ideas | Leave a Comment »

Up 26% in 2 weeks

Posted by fairval on June 25, 2010

Our Auto Ancillary recommendations seem to be working well. Rane (Madras) us 26% in 2 weeks..Others are up as well


Posted in Auto, Stock Ideas | Leave a Comment »

Auto ancillary Stock Ideas – Performance

Posted by fairval on June 23, 2010

Auto Ancillary Recommendations

This is how the auto ancillary stocks recommended by http://www.wisdomsmith.com have fared.

‘Current Price’ above refers to prices on 9 June 2010.  If u want the full report..

Wisdomsmith Auto Ancillary Report

Posted in Auto, Stock Ideas, Valuation | Leave a Comment »

Slowdown – Auto sales crashing south

Posted by fairval on November 23, 2008

There is some real depressing news coming out of auto sector. It is expected that car sales will fall in Nov, by as much as 15% over previous year. Car sales were down 10% in Oct.

The car segment posted growth of 3.5 per cent from April to October this financial year as against 13.4 per cent recorded during the seven-month period last year, said a news item in BS.

At this rate, car sales will show a decline in FY09 over FY08, by the time FY09 is thru.

CV sales are already heavily negative. For Oct’08, they were down something like 36%. For Apr-Oct’08, CV sales are down 15-20%.

2-wheeler sales are still growing, but the final FY09 tally may be 5-6% growth for 2 wheelers.

Overall, the auto sector growth rate will be well below 5%, and perhaps barely positive (since 2 wheelers have a large share in overall nos)

Posted in Auto, Indian Economy | Leave a Comment »