Currently the rubber prices have gone down a lot as compared to a year earlier and talking to some fellow boarders, I get the feedback that rubber glut is likely to remain for some more time.
Companies which use rubber as raw material should be beneficiaries of this benign rubber prices.
Most obvious companies that come to mind should be tyre companies which use rubber as main raw material. I think ceat, mrf, jk tyre, apollo tyres etc should benefit.
Among these companies those having maximum beta like ceat, jk tyres etc which have huge debt and have been beaten down due to these concerns and which have high correlation to rubber prices for their profitability should give maximum returns. I think ceat and jk tyres fall into these categories.
Another raw material which has been down for quite a while is aluminium. A big beneficiary here could be company like hawkins which has been suffering from supply side problems since past 3-4 quarters. If the company can resolve these issues, it can get the additional push from low aluminium prices and enhance its profitability.
Another company under the aluminium users category could be essdee aluminium. The company is apparently suffering from the problem of taking over india foils and subsequent problems. It needs close monitoring for steadiness/improvement in its business for a quarter or two.
ceat seems very interesting at cmp. they have reported excellent numbers in the past when rubber prices came down significantly and given than company is starting to do well in exports, i don’t see why they can’t report good numbers now. q4 fy12 was an example and it should see better times ahead. i believe balkrishna industries, one of the valuepickr should benefit from this as well but ceat would have a higher beta and is more of a short-term play for the next 3-4 quarters.
My bet here would be on JK tyres as they have very huge debt and hence maximum price correction was witnessed in the counter…And now interest rates are going to take the south direction eventually in next 2-3 quarters…these guys will be max benefitted from reduced finance costs…
Also Given maruti’s shutdown and auto sector’s slowdown … demand for rubber might come down and given their exports and rupee’s depreciation… seems JK is going to be benefitted maximum …
And from the aluminium point of view… my Pick would be Parekh aluminux whose main raw material is aluminium… again debt and raw-material play…
How about your opinion on Sugar sector now… are they poised for 1-2 baggers in the next 1 yr as they normally do give these type of returns from their lows when sector turns around… do you believe that sugar as sector has turned around or is just a shortt erm blip???
regarding parekh aluminex, i had been following the company and made a big multibagger out of it earlier. but the antics of the promoter mr amitabh parekh are not those befitting a good management. otherwise in lynch parlance it simply is a business any idiot can run.
regarding benefit of aluminium, it has very little benefit out of aluminium prices volatility as most of the order booking is done immediately followed by booking of aluminium needed. essentially the profits or losses are of a pass through nature to the best of my understanding. company itself does not have any pricing power as in case of hawkins.
regarding sugar sector, i have no idea how it works or where it is headed.
In the latest annual report of Hawkins, the management has mentioned the point regarding fall in aluminium prices on LME, but $ has appreciated as well,thus nullifying the benefits for Hawkins. But yes, once the supply side issues are resolved, the stock will rally. When, remains to be seen.
any idea on Hanung Toys being available at less than 3 pe…Though having high debt it has been posting better results qoq… PE growth to 6 itself can give a multibagger return. But sentiment has to improve which needs some time for that…
In my opinion, Narmada gelatine is a good short-medium term bet even after recent run up in the stock. Primary driver for valuecreationwill be higher earningsdue to increased production capacity and higher realization from gelatine prices. Downside risk is limited due to very modest valuation, no debt and very decent dividend yield.
It will be interesting to know your views on the same.
yes I had a look at narmada gelatins and looks good for short term. even on longer term time frame it looks good since it has grown consistently without any leverage.
Do you think Narmada Gelatin is an investment candidate at current levels ?? Though the long term prospects looks good, the recent run up in the stock and current weak market demands cautious approach.
Appreciate your replies for investors enlightenment
hitesh, do you think hawkins is a good long-term bet too or just good for short-term> also, why has ttk prestige shown better results than hawkins. wouldn’t they have similar supply-side issues.
hawkins is a good long term bet too. Its a company which is yet to take off in terms of sales growth. Main reason is the pig headedness of management in handling the labor disputes and the pollution control issue where some amount of palm greasing and ability to bend could have saved the company from a lot of damage.
TTK Prestige management in my view were one step ahead in recognising the latent demand in cookware and other allied products and were able to meet the increasing demand. Hawkins on the other hand were behind the curve and once they woke up were faced with issues mentioned above which still have not been fully resolved.
Even inspite of these above problems once the Hawkins management gets its act together, there seem to be some serious upsides to the stock price.
Two years running, company did eps in vicinity of around 60 and paid dividends in range of rs 40. If earnings and dividend were to increase at around 25-30% for next two years, price appreciation would be of a higher magnitude.
My expectations for fy 13 eps is around 75-80 and for fy 14 is 100 plus.
thanks for insights hitesh. but would you not prefer ttk over hawkins now given both are trading at similar valuations but ttk has a more proven record and seems to be ahead of the curve.
hitesh, do you think hawkins is a good long-term bet too or just good for short-term> also, why has ttk prestige shown better results than hawkins. wouldn’t they have similar supply-side issues.
yes I had a look at narmada gelatins and looks good for short term. even on longer term time frame it looks good since it has grown consistently without any leverage.
Hi Swapnil,
I strongly believe that a key determinant for investment decision shall be the difference between conservatively estimated intrnisic value of business and market price. If a business is available at substantial discount to its intrinsic value and offers enough cushion (margin of safety), one should surely invest into it irrespective of price history of stock. So from that perspective, I do not think recent run up demands cautios appraoch.In my opinion, even conservative estimate of intrinsic value of narmada gelatine will be close to 200.Not only narmada gelatine is a debt free company but also has roughly 17 crores of cash and cash equivalent. This means at current market cap of 55 crore, net of cash, company is available for 38 crores. for FY 11-12, NP was close to 11 crores. If we take into account expanded capacity and no margin expansion (due to higher gelatine price) , FY 12-13 NP is going to be around 13.5 crores. so payback is less than 3 years. A fantastic situation from any investment angle.
