Life Long Portfolio


(Amit Jain) #21

EVs need Lithium ion batteries. Exide and ARBL make lead acid. Procuring lithium is a bid deal hence they are unlikely to start EV batteries anytime soon. Exide and ARBL growth appears shunted.

Pharma, IT, FMCG, Banking… These sectors are bound to grow 15% Cagr in the next decade. We must identify companies that will participate. Let’s focus in a direction to have this thread get some workable results.


(Debanjan_M) #22

Exide is ready to procure Lithium technology as per the management commentary. They are just seeking for a sizeable demand in market, as the set up is expensive, hence they need to survive on margins and if demand doesn’t pick up anytime soon, there is no point making such investment.
As far as ARBL is concerned, there has been no such commentaries.

Besides, I expect a demand surge within 3-4 years as the commercial people mover space is going to see a drastic change riding on the GOI policies. Sensing that Maruti is readying to set up in alliance with Toshiba, a battery production unit for their own future products.


(Amit Jain) #23

Procuring Lithium ore is a big deal i hear, only couple of countries have those mines. India does not. Also, it may not fit in the current model of business for Exide as pricing will be a big issue. Too many uncertainties. Exide is cash rich, but still there are many ifs.

If Maruti gets an in-house supply of Lithium batteries… then I am buying the shares for the next decade:slight_smile:


(Vijay) #24

Maruti has JV with Denso and Toshiba to produce Lithium batteries in Gujarat from 2020.


(Vijay) #25

Auto Companies are more of a marketing company than just production units. Good cars must be marketed by a competent team. Tata lacks good sales and service channels. They are no where close to fixing it. If you look at great products like zest, tiago, Nelson, they sell in lower numbers than their real capabilities due to bad marketing and service.


(Vijay) #26

Safety is a function of our knowledge and capabilities. It has nothing to do with size of company. If you have good and accurate information and tracking capabilities for a large or small stock, you are relatively safer since you can enter and exit at the right time.

Remember that large stocks too have inflection points. It was 2015 for Maruti and stock doubled or I must soon say tripled.


(Vijay) #27

Can they produce Lithium batteries at cost and scale? Do they even have the know-how to do it?


(Debanjan_M) #28

I think they are looking at some kind of JV or ToT, which has not yet been disclosed. They were confident about the future of Automotive Solutions as it came up on a TV18 call. Hence as it is not yet announced I am waiting for a confirmation and not yet entered the script. Barring that their lead acid battery business is also doing fairly good, as the auto market is growing at a faster pace and Exide being OEM. Barring that their foray into Defence Sector is also somewhat possitive for future growth. As, I am relatively new to stock market, trying to dive deep into the facts and figures about a few companies and Exide is one of them.


(Debanjan_M) #29

That is for the production of battery and power units, not the powertrain… I am sensing a Toyota Suzuki pact for that. Let’s see.


(Debanjan_M) #30

Yes, you are right. But that is the area they are working most rigorously on now. I think, you ignored the “Made of Great” campaign of Tata. Tiago is a huge success as alone Tiago constitutes nearly 50% of their total PV sales. And it is also a segment performer, eating into a larger pie of entry level hatchback segment (Grand i10 being the top seller). Nexon is bound to be a runaway hit, provided the kind of hype it had with consumers since past 2 years. Geneva Auto Expo showcasing the production version only added fuel to that. And now the killer pricing, under cutting all its rivals by a huge margin of 1.25 Lakhs minimum. It is bound to get success. Mr. Gunter Butschek, CEO has put focus on brand building and service improvements more than anything else. He is confident on turning profitable within 3 quarters.

Now, these were all short term issues. On a sustainable basis, positive factors are negligible presence currently in PV Space, market leaders by far in the CV space which is bound to grow with improved road networks in INDIA and urban expansion, hugely under utilised production line (nearly 70% of PV facilities underutilised) which has been decided to put to hibernation until there is requirement as volume kicks in, which results in lesser requirements of Capex on a sustainable basis and last but not the least their fantastic business of JLR.


(Vijay) #31

If you look at bottom line, the margins on new car sale is not much when you compare service and accessories. The monthly sales of PV for Tata is still in the 13k to 15k range. It may be prudent to wait for volumes to start increasing before declaring growth for Tata Motors. Add to it that the India revenue is not significant to even discuss it.

The CV space for Tata is not doing good. Pricing pressure has forced Tata to offer steep discounts while Eicher has reduced sales to prevent margin erosion.

Altogether in my opinion, Tata Motors is not doing good in India and it may take several years to make an impact to EPS. This statement applies only to India business. Just creating an expensive marketing campaign will not change anything. The dealer network must be upgraded from selling cabs to selling family cars. Look at how well Nexa has played out for Maruti.

I agree on Tiago. I was about to type Tigor but auto correct changed it to Tiago. Again Tiago is good show with expensive marketing but now they need to back it up with sales and service. It is 2 to 3 year exercise since auto PV market growth is very slow for past decade.


(Amit Jain) #32

Maruti is no doubt better in most aspects than Tata Motors. However, given the share price, Tata Motors may be giving more value to the retail investor. Lets explore Tata Motors from that angle.

Maruti 2016 low 3200 and CMP 8100 that is a 150% rise.
TataMo 2016 low 265 and CMP 420 that is a 60% rise.

So, what remains to be discussed is:

If one is willing to buy Tata Motors, then at what price, and if Maruti then at what price?


(Vijay) #33

Maruti has 200k booking which are not delivered due to capacity bottleneck. Gujarat plant will likely bring this down in next 2 years. So do a conservative EPS calculation taking in to account that most of the sales will be new models in 5 to 10 lakh segment and most of those buyers opt for high er variant high margin zxi/zdi trims. We can easily see which will provide better returns if you assume PE to remain a constant. Tata Motors banks on JLR and considering a lower segment low volume car as indicator will not help EPS.

Disclosure: I am invested in Maruti and exited Tata Motors. My views may be biased.


(Amit Jain) #34

I got the point… Maruti is a better company… but what if we got Tata Motor at a PE 10 then would it be attractive, and maruti is still at PE 35…
lets run through the numbers.

Tata Motors
EPS 27 PE 10
sets the price to 270, which is the 2016 low…

So, then would one be better off buying tata motors at 270?

we are learning from these conversations, I am learning… so pls oblige.


(Debanjan_M) #35

Absolutely. And that is the point.

Aren’t we talking about a life long portfolio? Well, if you can see my first post I suggested equal exposure to Maruti and Tata Motors. Tata Motors being available at cheap valuation and having huge growth potential and Maruti having a stronger moat.

I along with Tata Sons’ and Tata Motors’ top management all believe in the turn around and strong position in the market. Yes, quiet certainly they can’t become the number 1 player but can have a respectable position on the long run.

A brand image that has eroded over times needs significant amounts of time to regain. New age Tata’s are well built product. Service and dealer network is being improved and that is evident. Hexa, Tiago, Nexon and Tigor are all very good products and all doing well in their respective segment. As, and when these products mature in the market brand Tata is bound to get revived. Besides they have now created Advance Modular Platforms which will replace existing 6 platforms with only 2. Resulting in flexibility and improved margins. This will be introduced in the market by 2019 end as the next generations of their existing fleet of cars comes out. Speaking of volumes, the entire fleet of Gypsys by Maruti in Indian Army are now getting replaced by Tata Safari Storme ( first phase contract 30,000), which was a failure in mass market.

As you mentioned ‘Nexa’ I would like to say that is the effort of Maruti to bifurcate their portfolio into luxury and basic cars. They did this to capture the market share that is enjoyed by players like Honda and Hyundai at the 10 Lakhs kind of range. For that it was required to play the role of Nexa as if they were not typical “Marutis” which earlier had resulted in the failure of old Baleno, SX4 and lately Ciaz. Hence that is a fantastic effort. While Tata is more focused on the mass segment, for that you really don’t need Nexa kind of experience. Just excellent customer care and relations would do. Mr. Gunter Butschek is focusing on that.

As you mentioned CV’s and price cut that was merely the effect of BS IV rush. Similar situations hit Ashok Leyland also. That was a temporary set back and both these giants are getting back to normalcy.

Overall, it will take time to turn around but will most likely happen.


(Debanjan_M) #36

Well certainly that is an expensive valuation of Maruti now. If you see the historic average of Maruti’s PE has been 27-28.

Considering that Maruti is a buy around 6,800 at current earnings. Anything below that is a burgain and certainly can be bought into.

In case of Tata’s, well you can see it has always been available at a discount hence there should be 23-25 kind of PE range when Tata’s do perform that well, as of Marutis. Considering that the 380 kind of price was reasonable enough as it had hit few days back. CMP of 413 also doesn’t look bad. But as a retail investor you should always be looking for Tata Motors DVR instead of Tata Motors. As around the world the DVR shares are available to only a 15-20% cheaper valuation than the mother stocks and you can do the math on how much cheaper the DVR shares are of Tata Motors. It’s a steal deal in this case.


#37

I was talking to one of the Tata motors top exec. And I had asked him about it’s potential. He replied they don’t understand their customer and lack a 10 year vision. Now the company might be available cheap but I think it’s not worth it. Moreover the industry is standing at the brink of a transition. I don’t think the company will stand a chance!
Disc. Had pvs holding but exited 6m back.


(Amit Jain) #38

Maruti is often selling at PE less than 20, only recently in 2016 it touched PE 17. At that time Tata Motors was PE 15.

Entire Nifty 50 gives super great bargains. Each sector rotationally. But we are wired to not be fired when good stuff is at bargain.

Currently, all our focus should be on IT and Pharma as they are selling at cheap valuations considering FY20E.


(Debanjan_M) #39

Excellent point made. That is the way to look into it. Catching the bottom is only theoretical, but catching near the bottom is an art to master and that is doable.


(Vijay) #40

I believe we need to look at probability. Maruti has higher probability to double EPS in 2 years while I don’t see such growth in Tata. From a loss making company (India operations), they first need to make a positive earnings to get a PE rating. PE makes sense only if earnings are predictable with fair accuracy. JLR is a different story and is the only reason one could buy Tata. Domestic operations are not looking good to me inspite of few good launches. Their sales team is not equipped to handle customers in the white board 5 to 15 lakh segment. We can wish it will change but can be certain only if we can see sales numbers. Also remember that every new platform costed huge expense for R&D. If they don’t sell volumes, they cannot keep a short refresh cycle. If their refresh cycle is not short, they cannot compete with maruti. Chicken or egg problem. Tata may sell moderate numbers but will not make Money for shareholders. Again this is specific to domestic PV.

Maruti on the other hand has visible bookings and you can confirm it if you visit a showroom. Look at the waiting period and current sales. Seems less risky when compared to Tata. However if we see CV turnaround, Tata may make a comeback. But those are ifs and buts.