CYCLICALS-- When and Where to Bet?

I read an interesting book by Parag Parikh. In that he explains how 5th and 10th ranking companies in an industry perform better on the Price chart than the 1st and 2nd. It is because their EPS growth appears much more to the investor !!

In that lighttime seems to be right to take positions in the sugar industry. I for one have my eyes glued on

1). Balarampur Chini. Purchase price 2008 low.

2). Bajaj Hind, very attractive price.

Of the two, from share price perspective Baja Hind is likely to give better returns. Its strong resistance is Rs.240 and 2012 low is Rs.18 that is 13x

Whereas for Balrampur key resistance, and my exit point is Rs.160 and 2012 low is 32; Only 5x. I think Mr.Parikh made a valid point.

PS:

Triveni Eng is a little confusing with Engn included (although they have demerged, but still) andRenuka listed only in 2006 too new and aggressive due to the acquisitions.

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why Renuka Sugar is out of discussion ?

Is any one following rail names? Say kalindee rail, texmaco and cimmco?

All rail names have halved or more than halved though it seems that the built-up order for the EPC pertaining to the freight corridor is going to start soon.

Regards

Do you track Titagarh Wagon too?

what do u guys think of Ratnamani metals and tubes it looks attractive at this price.

Was listening to Indusind concall yesterday. They have a CV portfolio of about 19% of their total book, and including small CV and utility vehicle loans, it is 27%.

They have seen a gradual increase in the NPAs in the CV portfolio from around 1% to 1.3%. However, they sounded positive on the future and expect these levels not to worsen by more than 5-10 basis points. Expected turnaround is 3-4 months after elections ie around Q2-FY15. However, in my view, the market may start discounting it earlier. They indicated that they are seeing some sign of month on month improvement in Dec, albeit it is only 1 month. Generally Q4 is a better period for this sector in their opinion.

If the financier is expecting a revival, the story could be better for end users. There are some CV players we could look at as turnaround plays.

Tata Motors - is the largest player. It is firing on all cylinders on the JLR side, with the outlook being generally positive for this part of the business. China, Europe, USA are expected to post better growth next year and the signs are visible with all the global auto majors posting better numbers last couple of quarters. Compared to this, the domestic CV business is a small part (currently 10-15%) and largely due to the local slowdown. This is a drag on the overall business. The profits, cash, return ratios etc of Tata Mot have been held up by the JLR numbers. The standalone financials (CV plus ancillary) is dismal. The co. appeared in the recent Motilal Oswal wealth creation study where the increase in the stock price relative to the increase in the net profits over the last 5 years has been very less.

Ashok Leyland - This is the 2nd largest CV player and is only into CVs. Owned by Hindujas. Exports are to developing nations currently (SAARC, Gulf, Africa etc). But this is entirely a domestic play. They have 50-50 JVs with Nissan and John Deere. Even during the slowdown they have been making investments in the business - in their above JVs and in their foundry subsidiary which supplies to them. They have a very strong rural distribution network especially in the South. They have been selling non core investments (eg in Indusind bank) to generate cash to reduce debt and increase core investments. They have posted very poor operating profits and net loss (excl. other income) in the last 2 quarters. Average utilisation is 20-30% and there is a fair level of operating leverage possible in case demand improves and production increases. It is available at 5000 cr market cap even after the current run up and looks to be the cheapest stock available. Another positive aspect in its favour is that the entire investment expert community is negative on it :slight_smile:

The third stock I have in view is Eicher Motors. While the bikes business is in the limelight, the CV portion is the real kicker in my view. They have 50-50 JV with Volvo and have also invested a lot in this notwithstanding the slowdown. Like Ashok Ley, they have also a slew of launches ready for the coming months. Volvo is planning to use this as their global souring hub for engines and parts, and thus Eicher, like Tata Mot, has an element of international recovery play going for it. Valuations look on the higher side though.

Would request knowledgeable boarders to post their comments on any investment candidates in their radar in this sector.

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One logical flaw is in many posts. My thoughts are below on choosing cyclical:

Cyclical do best in good time where debt is higher. Higher debt is often due to creating extra capacity. In doom time excess capacity is not utilized and interest cost wreak havoc on bottom line so they do very miserably on stock price. BUT when tide turns such companies have best capability to fulfill the demand and their bottom line rises much higher than those whose capacity is fixed and BS is clean. Mkt loves such sudden jump in profit and rewards the stock well.

Commodity demand has some connection with interest rates. Lower rates and rising demand motivates commodity player to further enhance the capacity and often it leads again to excess capacity and cycle reverses again!

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mid cap cement are one of the best cyclicals to play for…just keep an eye–opportunities come every 3-4 years

this sector has consolidated already…with major foreign players controlling the markets apart from aditya birla group…

i love to go for businesses where any other player is ever ready to buy it…cement plants one of them

even in uncertain times /poor infra growth…they are running at 70% cap…

in years to come this is bound to increase…some of best mid cap players are

india cement(market cap 1700 cr with 1000 cr cash flow per year)…low valuation…major beneficiary in a upcycle due to good capacity built up already…debts can be wiped off in 2 years of good cycle with 2 years profit…

dalmia bharat–(looking for pan india presence…young management who want to prove themselves…so can go a long way…consolidating its cement divisions…shree cement executive roped in recently…etc etc)this co can go all the way what shree cement did since last 10 years…things are on the move for this company…with 18 mt capacity under control would be a major beneficiary in a up cycle…

birla corp on dips

hi

if ashok leyland looks cheap at 5000 cr mkt cap…why not sml isuzu–mnc company

sml isuzu at such low market cap reminds me about eicher motors when i identified at 700 cr market cap…swaraj mazda and eicher motors had similar products 10 years down the line…however things changed for eicher with entry into larger trucks…

sml isuzu needs a slot in any portfolio for people looking consistence and growth and also want to participate when economy recovers…one never know what returns such companies will give year on year…but returns are for sure with no risk…

in stock markets people move with performance…once stock starts performing all come in…sml is a sleeping giant…wont be surprised to see interest coming even after it moves from 300 to 1200…because at 1200 also it could be a multibagger as mkt cap will still be very low

:))

Hi…

Are anyone tracking cement stocks… With BJP projected to get 200+ seats, NDA may form the next government… Confidence coming back, investing/infra spending increasing economy may show an uptick after a few quarters lag…

Other than keeping an eye on retail prices, capacity utilization and other factors how do seniors/veterans precisely find the cycle turning…

Most of the cement players are adding new capacities…

Most of the times its difficult to time cyclical… We will miss till we spot and invest… So can we invest when the sector is beaten down and wait for a turnaround…

Regards

mallikarjun

Sugar cycle is already showing sign of turning. Sugar output is expected to be lesser this year, export subsidy to export raw sugar to bring down inventory and crop diversion to other uses. Renuka Sugar stake is picked up by Wilmar group. So, looks like good time to buy Sugar stocks.

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What about 1200 cr of arrears due to farmers from sugar companies. The increase in sale may not translate to the corresponding increase in bottom line. Also the farmer association have bee pushing for higher cane prices.

Any views on EID Parry? Microsec has come out with a report saying it has a 60% upside.

Sticking to “high quality cyclical” provides safety during bearish market. They provide better risk adjusted return over other cyclical stocks.

I selected 10 random"high quality cyclical" known in last bull phase 2002-2007from various industries to understand the picture. There must be debate over selectionbut for now I have selected diversified stocks here.

**Result : **After equal weighatage to all selected 10 stocks portfolio in 2002 results 77 % CAGRin 6 years. ( average 30x return in 6 years from 10 stocks )

Attachment included.

**Assumption :
**

  • We selected complete bull phase from bottom to top; which is difficult to predict.
  • Strict selection of diversified"high quality cyclical" is important.

_
_

My thought is to create list of 10"high quality cyclical" for Bull Run. We can continue in same thread or create separate thread for"high quality cyclical for next 6year"


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Concall transcripts for JK Lakshmi Cement - http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/8B3491AA_0CAA_460F_8345_687B4B27938B_164252.pdf

I was trying to analyse Breweries and Plastic sector to see if they are cyclical.
My argument is if it has to be non cyclical then it can correct for 1-2 years but there should be no 5 year period with negative returns.


For Breweries we can say it’s cyclical but seems like sector wise generalization may not be such a good idea for plastic sector.

Hi @hitesh2710 ji
could please advice is it right time to enter in hotel cycle i had made small write up shared below could please find time for your preview

It is on seperate thread could you please advice
regards

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@hitesh2710 - perhaps we should talking about the topic again. Somehow i think cyclical business are dependent on long term focus areas of govt and definately global conditions.
Have heard many times the sector that was hot in last bull cycle does not work in next.
What contradicts is the rise we have seen in banking, IT, Chemical ind

Sir do u have any thoughts on this?