Commodity and Cyclical Plays


(SOHAN) #687

Hello all.In cyclical investing pe ratio doesn’t work to some extent.can price to book used to value cyclical stocks or only technical analysis(bottoming out on charts)?if price to book can be used what is ideal p/b ratio?


(manivannan.g) #688

I think the OPM% works much better, thanks to Jiten for the explanation, pls refer his interview shared in this thread.

Also, as explained another member, the higher P/E ratio of cyclical stock means it’s in the cyclical bottom, and the lower P/E means it’s in cyclical top. Ex:Hindcopper at current situation.


(Jiten Parmar) #689

It’s a host of parameters, I use. Some of them are.
Replacement cost
P/B
Operating margins.

And most of all, supply and demand.


#690

i want to draw attention of this thread towards this company pokarna…

this company is a manufacturer of quartz , using breton stone technology , which is considered to be of superior quality. essentially a commodity play, where the company mainly supplies to the oem market , and has recently been in pursuit to establish as a brand…

the market is mainly export, to US, where the demand is currently huge and has been estimated to be on a growth trajectory of 25% cagr as mentioned by the management in one of the recent concalls…
the chief competitor is the chinese quartz, which currently holds, 60percent of the market share in the US…

the company has planned 130% capex in this segment which is scheduled to come online 18months from now [18 months had been the guidance since q4 concalls, land acquisition has been complete, machinery has been ordered ]

http://www.stoneupdate.com/news-info/latest-stuff/1554-china-quartz-surfaces-to-face-new-tariffs

the potential of this antidumping duty if imposed , can be exciting …

the Us production lines, currently enjoys lesser margins than what even pokarna enjoys…
the reason for the same was unexplained by the management

in the recent concall., they were asked what can be the potential pricing effect of their products if this duty imposition occurs, quite surprisingly, the reply that came, was they wouldnt just go and increase the price of their quartz, just because of the duty imposition…

the company has also difficult in directly passing on the RM price hikes[heavily dependant on crude, resin being a chief rm] , instead what they have done is introduced new patterns of quartz at a higher price , and removed the previous patterns form the market, as a modus to pass on the increased rm costs…

the company also has a granite business., which is currently in state of over supply mainly form the production line in brazil, whos color are in good demand in the US market, and indian colors seems to be losing the pricing power, with the declining segmental margins qoq…

the quartz topline has been attractive in terms or growth , a significant amount of capex oncoming in quartz, probable duty imposition [25 to 100%]on chinese quartz which holds the majority of the market share, and a pricing upcycle trigger possibility from the US production lines…

disclaimer… not invested


(adeepsandhu) #691

I’m pretty surprised that after a temporary correction of around Rs1500/MT steel prices are again back at all time highs now. As on date lowest cost imported steel is around Rs600-750/MT expensive than the domestic steel. I cannot understand if It is the demand of steel or high import price which is supporting such high steel prices.


(Jiten Parmar) #692

In my presentation and here too, I have maintained that these corrections often can mislead. My view for sometime has been that steel is still in mid-upcycle.


(Amit) #693

Key points

A confluence of competitive, technological and regulatory forces have pulled-forward auto maker’s plans to aggressively introduce EVs over the next 3 to 5 years vs. 20 to 25 years previously. The path from here involves many hundreds of billions of dollars of capital investment across the sector stack including autos, commodities, cap goods and the supporting infrastructure

Battery costs have been a major barrier to increasing BEV penetration. While battery costs have dropped nearly 30% per year for the past five years, that decrease largely has been a function of improved production scale, which now is diminishing.

Cathode manufacturers are gearing up for substantial increases in production but could face associated pressure on their pricing levels. Demand for battery components like copper, cobalt and lithium could increase sharply, as could prices.

Powertrain, transmission and fuel systems manufacturers who have built business models around internal combustion will likely face headwinds as BEV adoption increases.

https://www.morganstanley.com/spc/knowledge/managing-wealth/research/auto-industry-bracesforelectricshock/


(Jiten Parmar) #694

The updated presentation on Cyclical Investing Strategies I did in VP Chintan Baithak 2018 is attached here.

comm latest.pdf (1.2 MB)


(sougataG) #695

Thank you for sharing @jitenp


(Jay vaghasia) #696

Recently, minister chaudhary birender singh hinted at imposing safeguards to prevent import of steel from s.korea and japan as india has become new dumping ground after U.S. tarrifs.if safeguards are imposed it could be huge trigger for steel sector.


(Raj A A) #697

Steel sector :Crisil report
https://drive.google.com/file/d/1se5yJOdoYQTfcW7y9gdLslURq1gNtM_Z/view


(shikhar mundra) #698

@jitenp thanks for sharing the wonderful presentation. can sanghvi movers be a good cyclical pick right now , given the fact wind sector is going through bad times. Lots of scope for operating leverage in the stock. its capacity utlilization and yield are on the very low side currently. Once the cylce turns it may be the first to benefit, given the fact it has 70 % market share in the crane leasing industry.


(CA Mitul Shah) #699

Is anyone tracking companies producing H-Acid and Vinyl Sulhpone ? China is closing down factories and domestic companies in this sector are carrying out expansion as well as pricing has surged recently resulting in cycle being up for next 6-12 months. Plus major part of sales of such companies come from export so rupee depreciation will also add to the revenues and profitability. Last time the cycle went up in 2016 when stocks in the sector gave multi-fold return. Can the same repeat this time ??

Companies in the sector likely to benefit from the above cycle includes Bhageria Industries, Kiri Industries and Bodal Chemical.


(Cshar) #700

Kiri and bodal are well placed in dyes intermediatries, bodal has just completed expansion, kiri is doing expansion in disperse dyes,
Disclosure: invested in kiri industries


(Amit) #701

The lacklustre performance of the metals sector so far in 2018 as a result of recent declines due to Trump’s trade war, with only nickel posting gains.


(pranav25) #702

What is everyone’s view on Indigo? It seems to be the perfect case of a good company facing tough times in a industry that’s facing even tougher times. Falling rupee, escalation in fuel costs have dented the profitability a lot. This clubbed with fall in ticket prices for 0-15 days across the industry has led to pricing pressures.

Now Indigo has the most optimised pricing structure among the domestic carriers. In addition, it has A320NEO’s which are 15% more fuel efficient than A320CEO. I won’t go into more details of the company as they are covered in depth on the relevant thread. Why I posted this here is because I feel that due to the commodity nature of the industry (to an extent), these might be good times to buy. All the indicators are there- fall in OPM, profits, industry distress (look at Jet). At the same time, number of people flying will only increase with time.


(Deepen Thakkar) #703

Jiten Bhai ,
Your current outlook on ferro alloys sector , since you were bullish and exposure some cpl of months ago .
Disclaimer: having significant exposure in IMFA


(saumya) #704

https://m.timesofindia.com/business/india-business/copper-production-dips-47-imports-surge-233/articleshow/65600945.cms


(Raj A A) #705

Unfortunate PSU giant is not taking this opportunity to increase the market share thereby reducing the import. This time it will be different for Hind copper is belied. Our investment in Hind copper appears to be down the drain.


([email protected]) #706

Is any one tracking cotton prices, have been checking Indexmundi site and the prices are at the peak.
I believe this should be -ve for Trident, Ambika Cotton,Nitin spinners etc but when I had seen the Q1 results they werent that bad, am I missing anything?