Category Archive : Stock Market

Auto Ancillary industry in India

Auto Ancillary Sector Analysis

This analysis is done with the only purpose of screening out good companies. No suggestions are being made to directly go and invest in the top scoring companies of this analysis.

Let’s study some auto ancillary companies, we have selected the following companies for study and analysis: –

  1. Bosch
  2. Motherson Sumi
  3. Exide Industries
  4. Endurance
  5. Wabco India
  6. Amara Raja Battery
  7. Varocc Engg.
  8. Minda Industries
Sr. No.Company NameMarket Cap (Rs. Crore)
1Bosch60,603
2Motherson Sumi53,290
3Exide Industries22,389
4Endurance16,569
5Wabco India12,884
6Amara Raja Battery12,662
7Varocc Engg.9,014
8Minda Industries8,469

The top 100 companies according to the market capitalization are called as the large cap companies. Companies from 101 to 250 (based on market capitalization) are the mid-cap companies and the rest, that is above 250 are the small cap companies.

Bosch and Motherson Sumi are the large cap companies. Exide Industries is a mid-cap company. And the rest of the companies, Endurance, Wabco India, Amara Raja Battery, Varocc Engg., Minda Industries, are all small cap companies.

The analysis of these companies is going to be based on 6 parameters. They are as follows: –

  1. Price-to-Earnings (PE) Ratio
  2. Return On Capital Employed (ROCE)
  3. Return On Equity (ROE)
  4. Debt-to-Equity (DE) Ratio
  5. 5 Years Sales Growth
  6. 5 Years Net Profit Growth

These parameters play an important role in the analysis of any company. This does not mean that one should be dependent only on these, but these parameters are crucial for initial screening.

First, we have given the companies their ranks and then accordingly we have assigned scores to those companies from 1 to 8, where 1 being the least and 8 being highest score. (total number of companies taken here are 8, that’s why the mentioned scoring card)

PE Ratio

Sr. No.Company NamePE RatioRankScore
1Bosch37.3572
2Motherson Sumi31.0254
3Exide Industries30.0845
4Endurance36.0563
5Wabco India41.4381
6Amara Raja Battery26.5936
7Varocc Engg.19.6918
8Minda Industries26.4627

PE ratio is nothing but what price an investor is paying for 1 rupee of earning.

The company which has the highest PE ratio has been given number 8 rank and the company which has the lowest PE ratio has been given number 1 rank.

But the company which has the highest PE ratio has been given the lowest score.

Wabco has the highest PE ratio and thus got number 8 rank and scored 1. Varocc Engineering has the lowest PE ratio and thus scored number 1 rank and a score of 8.

ROCE

Sr. No.Company NameROCERankScore
1Bosch22.7354
2Motherson Sumi19.8672
3Exide Industries20.0863
4Endurance23.0645
5Wabco India25.6918
6Amara Raja Battery24.9227
7Varocc Engg.15.5281
8Minda Industries24.4836

The company which has the highest ROCE has the highest rank and has also been given the highest points. And the company which has the lowest ROCE has the lowest rank and has also been given the lowest score.

Here too, Wabco has the number 1 rank and scored 8 points. Varocc Engineering, here too, has the lowest rank and scored 1 point.

ROE

Sr. No.Company NameROERankScore
1Bosch15.2372
2Motherson Sumi18.9636
3Exide Industries13.4681
4Endurance20.7427
5Wabco India18.2945
6Amara Raja Battery16.7363
7Varocc Engg.17.9654
8Minda Industries26.0318

ROE has been analyzed on the same basis as ROCE.

The company which has the highest ROE has the highest rank and has also been given the highest points. And the company which has the lowest ROE has the lowest rank and has also been given the lowest score.

Minda Industries ranked 1st as it had the highest ROE and thus scored 8. Exide Industries ranked 8th as it had the lowest ROE and thus scored 1.

DE Ratio

Sr. No.Company NameDE RatioRankScore
1Bosch018
2Motherson Sumi1.0581
3Exide Industries018
4Endurance0.3754
5Wabco India018
6Amara Raja Battery0.0245
7Varocc Engg.0.4263
8Minda Industries0.4472

The company which has the highest DE ratio has the least score and the company with lowest DE ratio has the highest score.

Bosch, Exide Industries and Wabco being 0-debt companies have scored 8. Motherson Sumi has the highest DE ratio and has thus scored 1.

5 Years Growth – Sales & Profit

Sr. No.Company Name5 Years Sales GrowthRankScore
1Bosch6.1972
2Motherson Sumi17.3536
3Exide Industries8.8463
4Endurance11.3354
5Wabco India21.6227
6Amara Raja Battery15.4145
7Varocc Engg.081
8Minda Industries27.2418
Sr. No.Company Name5 Years Net Profit GrowthRankScore
1Bosch9.4663
2Motherson Sumi31.3127
3Exide Industries5.9172
4Endurance19.2336
5Wabco India14.5145
6Amara Raja Battery10.0454
7Varocc Engg.081
8Minda Industries61.8718

The company with the highest 5 Year CAGR in Sales and Net Profit get the highest rank and thus gets the highest score. And Vice-Versa.

Minda Industries has the scored 8 in both, as they have the highest 5 years sales & net profit growth. And Varocc Engineering has the scored 1 in both, as they have the lowest 5 years sales & net profit growth.

Final Standings

RankCompany NameFinal Score
1Minda Industries39
2Wabco India34
3Amara Raja Battery30
4Endurance29
5Motherson Sumi26
6Exide Industries22
7Bosch21
8Varocc Engg.18

Minda Industries is on the 1st position with 39 points, Wavco India on 2nd with 34 points, Amara Raja Battery on 3rd with 30 points and Varocc Engineering is on the last position, that is 8th with 18 points.

Companies in the 1st four positions are all small cap companies. Also, as Bosch has secured a lower rank does not mean that it is a bad company even after being a large cap and a blue-chip company. Its just that according to the parameters selected here, Bosch has scored less.

The point here is to focus on the fundamentals of the company. Here, we have analyzed the company based on their current fundamentals. Also, the qualitative analysis of these companies will provide with a better outlook towards them

And quantitative analysis along with qualitative analysis will give a better understanding of which company is worth investing from here on.

Note:

  • We are not, in any case, suggesting buying stocks of any of the companies mentioned above. We have just provided a study on these companies.
  • All the data used is of Trailing Twelve Month (TTM)

HDFC Bank Stock vs Kotak Bank Stock

A comparison between these 2 banks has been presented here. The comparison is done in quantitative terms. This comparison is just to get a perspective on how these banks stand against each other.

Basic Information

ParametersHDFC BankKotak Bank
Market Cap (Rs. Crore)5,65,8332,36,224
Stock P/E29.735.8
ROCE7.32%7.93%
ROE17.87%13.87%
Total Capital Employed (Rs. Crore)1,17,63725,779
Total Assets (Rs. Crore)10,63,9883,37,720
Average ROCE – 3Years7.678.43
Interest Coverage Ratio1.641.7
D/E Ratio8.584.95
D/B Ratio5.324.68
Dividend Yield0.60.06
Promoter Holding21.43%30.02%
PEG Ratio1.411.55
Interest Coverage1.641.7
PAT Growth 5 Years21.05%23.05%
Sales Growth 5 Years18.01%18.32%
Gross NPA1.30%2.22%
Net NPA0.40%0.98%
  • In terms of PE, Kotak bank seems to be little over-priced in comparison with HDFC bank.
  • ROCE of both the banks is almost same.
  • ROE of HDFC bank looks better than the ROE of Kotak Bank.
  • Total Capital Employed of HDFC bank is almost 4 times that of Kotak bank.
  • Total Assets are the loans given in the market.
  • If the Interest Coverage ratio of a company falls below 2.5 then it can be an alarming sign. But this can be said in the case of banks, because their itself is of borrowing and lending. In case of banks, having interest coverage ratio above 1 is healthy. The banks have almost similar values, but Kotak has a little advantage.
  • Banks will always higher D/E ratio values as their business is of lending itself.
  • In terms of P/B ratio, HDFC bank looks a little over-priced.
  • Both the banks have dividend yield lower than the industry average. Lower the dividend yield the better it is for a bank. This means that promoter wants to still re-invest the money rather than taking a payout as a dividend.
  • The major promoter holder in HDFC bank is HDFC Ltd and the promoters of Kotak Bank are Mr. Uday Kotak family. RBI has instructed the promoters of Kotak Bank to reduce their holding in the bank up to 20% before 31st December 2018.
  • The PAT growth of Kotak bank is more.
  • Sales growth of the banks are almost same.
  • Gross NPA and Net NPA are two of the most important parameters here. HDFC bank scores very well here as their Gross NPA is very low in regards of their loans given in the market. In Net NPA too, HDFC bank has upper hand over Kotak bank.

Last 12 Quarter Results

HDFC vs Kotak Bank Quarterly Performance

These are the Quarter-on-Quarter results of the last 3 years.

  • Sales of HDFC bank has been increasing every quarter. Which is a very good sign.
  • Kotak bank too is growing on the same line. Only one quarter it has shown negative growth. But overall Kotak bank is also growing nicely.
  • In Net profit, there are only 3 quarters where HDFC bank has shown a little negative growth in quarter-on-quarter.
  • And in Kotak bank, there are only 2 negative growth quarters.
  • On these parameters, both the banks are growing only similarly.

Yearly Performance

HDFC vs Kotak Bank Yearly Performance

This is the yearly performance of the banks for the last 10 years.

  • Sales growth of HDFC bank in 10 years is 23.01%. And that of Kotak bank is 21.29%.
  • Net profit growth 10-Year CAGR of HDFC bank is 27.10%. And that of Kotak bank is 20.13%.

We have also shown sales & net profit growth on the base of 3-years rolling returns.

  • Here, one can see that in the last 3-year rolling returns of the last 3 years, the sales growth of Kotak bank is being beating those of HDFC bank.
  • And in profitability too, the 3-year rolling returns of last 2 years, the growth momentum can be seen shifting to the side of Kotak bank.

Share Price Movement

Comparison Chart HDFC vs Kotak shares

Source – Moneycontrol.com

  • The price movements of the stocks of both the companies is almost same.
  • Both the banks given around 700% returns in the last 10 years.
  • The returns of HDFC bank are a little higher as their dividend yield too has been a little higher as compared to Kotak bank.

Note: –

  • We are in no way telling anyone to go and invest in stocks immediately.
  • We are also not suggesting that these two are the best banks and to buy the stocks of these banks. Neither are we suggesting which one is better to buy.

What is a Value Stock? How to Identify one?

Value Stock Identifiers

What is/How to Identify a Value Stock?

There aren’t any ultimate indicators or the thumb rule of identifying value socks, but following are the major parameters that can be used to focus and short list value stocks list: –

  1. Low Price-to-Earnings (PE) Ratio
  • A stock which is trading at below average of all the other stocks in that category, then that stock is called as a Low PE ratio stock
  • PE ratio is nothing what price an investor is paying for 1 rupee of earning. For example, if a stock has a PE ratio of 20, it mean that for earning 1 rupee the investor is willing to pay 20 rupees
  • PSU Bank stocks are generally low PE ratio stocks (not saying that they are value stocks). For example, suppose private banks are having PE ratio of 25-30 and PSU banks are having PE ratio between 8-12. This would mean that market is paying lesser money for PSU bank stocks compared to private bank stocks
  • So, if a stock has low PE ratio then it can be said that is a greatly valued stock, but one should also look at other parameter like business performance, etc. along with it
  1. Low Price-to-Book (P/B) Ratio
  • P/B ratio compares the current market price of the share of a company with its book value
  • Let’s say that a company gets liquidated and its PB is 1. Then it would mean that one will at least get back the current value of whatever invested
  • Generally, value stocks trade at lower P/B ratio, ranging between 1 to 2
  1. High Dividend Yield
  • A company will give high dividend yields when the company doesn’t have any growth potential ideas with them and they don’t want to retain whatever surplus money they have or profits they are earning. They think that it is better to give that money to investors rather than re-invest
  • High dividend yield means market feels that the company doesn’t have many great ideas for business and that is why they are distributing dividend to their investors

These are the basic thumb rule with the help of which one can identify or at least shortlist the first list of value stocks.

Suggestions for Investors: –

SEBI has introduced new mutual fund categorization and with that a Value/Contra investment strategy in equity oriented mutual funds. Investors can check few mutual fund portfolios and have a look at the average PE ratio, average P/B ratio and dividend yields of that portfolio to understand and identify value stocks:

  1. ICICI Pru Value Discovery Fund
  2. Aditya Birla Sun Life Pure Value Fund (more focused on small and mid cap and shouldn’t be compared with Nifty or Sensex PE ratios and compare them with small and mid cap indices PE ratio)
  3. Invesco Contra (Contra Strategy)

For example, ICICI Pru Value Discovery Fund has an average PE ratio of 19. Average PE ratios of Nifty or Sensex are 21-22. Thus, the funds PE ratio is below the average PE ratio of the category. The P/B ratio of the fund is around 1.8, which as mentioned above is between 1 and 2.

We are not suggesting anyone to invest in these funds and are only mentioning these stocks for you to have look at their portfolios and understand what value stocks are and how to identify them.

India Auto Sector (Stock) Analysis

Let’s study some auto sector companies, we have selected the following companies for study and analysis: –

  1. Maruti Suzuki
  2. M&M
  3. Bajaj Auto
  4. Hero MotoCorp
  5. Eicher Motors
  6. Tata Motors
  7. Ashok Leyland
  8. TVS Motors

The companies here are a combination of 2-wheeler and 4-wheeler companies. These companies have been chosen on the basis of market capitalization.

Sr. No.Company NameMarket Cap (Rs. Crore)
1Maruti Suzuki2,35,892
2M&M98,878
3Bajaj Auto83,460
4Hero MotoCorp67,122
5Eicher Motors65,861
6Tata Motors50,803
7Ashok Leyland31,131
8TVS Motors27,553

The top 100 companies according to the market capitalization are called as the large cap companies. Companies from 101 to 250 (based on market capitalization) are the mid-cap companies and the rest, that is above 250 are the small cap companies.

All the 8 companies here are large cap-oriented companies.

The analysis of these companies is going to be based on 4 parameters. They are as follows: –

  1. Price-to-Earnings (PE) Ratio
  2. Return On Capital Employed (ROCE)
  3. Return On Equity (ROE)
  4. Debt-to-Equity (DE) Ratio

These 4 parameters play an important role in the analysis of any company. This does not mean that one should be dependent only on these, but these 4 parameters are crucial for initial screening.

Every parameter has been equal importance (25%). And the companies are scored from 1 to 8, where 1 being the least and 8 being highest score. (total number of companies taken here are 8, that’s why the mentioned scoring card)

PE Ratio

Sr. No.Company NamePE RatioScore
1Maruti Suzuki29.864
2M&M17.267
3Bajaj Auto18.625
4Hero MotoCorp18.356
5Eicher Motors31.193
6Tata Motors35.452
7Ashok Leyland15.798
8TVS Motors40.641

PE ratio is nothing what price an investor is paying for 1 rupee of earning.

The company which has the highest PE ratio has been scored 1 and the company with the lowest PE ratio has been a score of 8.

The PE ratio of TVS Motors is the highest and has gotten the score of 1 and Ashok Leyland has the lowest PE ratio and that is why it’s has been scored 8.

This does not mean that Ashok Leyland is the best and TVS Motors is the worst stock. A company gets premium valuations when the company’s business prospects are looking good.

ROCE

Sr. No.Company NameROCEScore
1Maruti Suzuki23.77%3
2M&M13.64%2
3Bajaj Auto30.96%6
4Hero MotoCorp46.1%7
5Eicher Motors49.4%8
6Tata Motors8.55%1
7Ashok Leyland28.4%5
8TVS Motors24.09%4

Eicher Motors has scored 8 for having the highest ROCE and Tata Motors scored 1 for having the lowest ROCE.

Eicher Motors has a ROCE of 49.4%. This mean that it has capacity of 49.4% to generate returns on the capital. This is a very good number.

ROE

Sr. No.Company NameROEScore
1Maruti Suzuki16.37%2
2M&M17.23%3
3Bajaj Auto22.15%4
4Hero MotoCorp32.46%8
5Eicher Motors31.68%7
6Tata Motors10.04%1
7Ashok Leyland23.22%5
8TVS Motors24.44%6

Here too, Tata Motors scored 1 by having the lowest ROE and Here MotoCorp has the highest ROE and has thus scored 8.

DE Ratio

Sr. No.Company NameDE RatioScore
1Maruti Suzuki08
2M&M1.521
3Bajaj Auto0.016
4Hero MotoCorp08
5Eicher Motors0.025
6Tata Motors0.932
7Ashok Leyland0.144
8TVS Motors0.413

If a company’s ROE is less than its ROCE, then it means that the company is not able to mange its debt efficiently. And whenever, the ROE decreases than the ROCE, the chances of increasing debt increases. If the company is mt able to generate returns and is also not able to service its debt, then that is not good.

Maruti Suzuki and Hero MotoCorp being 0-debt companies have scored 8. M&M has the highest DE ratio and has thus scored 1.

Final Standings

RankCompany NameFinal Score1 Year Returns
1Hero MotoCorp29-12.5
2Eicher Motors23-23
3Ashok Leyland22-10.8
4Bajaj Auto21-14.5
5Maruti Suzuki17-22
6TVS Motors15-26.4
7M&M135
8Tata Motors6-58

Hero MotoCorp is on the 1st position with 29 points, Eicher Motors on 2nd with 23 points, Ashok Leyland on 3rd with 22 points and tata Motors is on the last position, that is 8th with 6 points.

M&M is the only company which is showing positive returns in the last 1 year.

The point here is to focus on the fundamentals of the company. Here, we have analyzed the company based on their current fundamentals. Also, the qualitative analysis of these companies will provide with a better outlook towards them

And quantitative analysis along with qualitative analysis will give a better understanding of which company is worth investing from here on.

Note:

  • We are not, in any case, suggesting buying stocks of any of the companies mentioned above. We have just provided a study on these companies.
  • All the data used is of Trailing Twelve Month (TTM)

Consumer Durable Sector Analysis

Let’s study some consumer durable companies, we have selected the following companies for study and analysis: –

  1. Havells India
  2. Voltas
  3. Whirlpool
  4. Symphony
  5. Blue Star
  6. Bajaj Electrical
  7. Johnson Hitachi
  8. IFB Industries

All the companies selected above are the major companies which are involved in Air conditioning and air-cooling segment, which is the most popular segment in the consumer durable sector. There may be arguments that one can also include Titan or TTK Prestige or Hawkins Cooker. But in this analysis, we are focusing on the air conditioning and air-cooling market.

Company NameMarket Cap (Rs. Crore)
Havells India44,099
Voltas18,966
Whirlpool17,821
Symphony8,497
Blue Star6,192
Bajaj Electricals5,229
Johnson Hitachi4,916
IFB Industries3,397

The top 100 companies according to the market capitalization are called as the large cap companies. Companies from 101 to 250 (based on market capitalization) are the mid-cap companies and the rest, that is above 250 are the small cap companies.

Out of all the companies, listed above, Havells India is the only large cap company. Voltas and Whirlpool are the mid cap companies. And Symphony, Blue Star, Bajaj Electricals, Johnson Hitachi and IFB Industries are the small cap companies.

The analysis of these companies is going to be based on 4 parameters. They are as follows: –

  1. Price-to-Earnings (PE) Ratio
  2. Return On Capital Employed (ROCE)
  3. Return On Equity (ROE)
  4. Debt-to-Equity (DE) Ratio

These 4 parameters play an important role in the analysis of any company. This does not mean that one should be dependent only on these, but these 4 parameters are crucial for initial screening.

Every parameter has been equal importance (25%). And the companies are scored from 1 to 8, where 1 being the least and 8 being highest score. (total number of companies taken here are 8, that’s why the mentioned scoring card)
PE Ratio

Sr. No.Company NamePE RatioScore
1Havells India55.118
2Voltas32.671
3Whirlpool46.075
4Symphony53.846
5Blue Star41.793
6Bajaj Electricals32.682
7Johnson Hitachi54.677
8IFB Industries45.964

PE ratio is nothing what price an investor is paying for 1 rupee of earning.

The PE ratio of Havells is the highest and has gotten the score of 1 and Voltas has the lowest PE ratio and that is why its has been scored 8.

ROCE

Sr. No.Company NameROCEScore
1Havells India27.61%5
2Voltas21.69%3
3Whirlpool33.29%7
4Symphony46.29%8
5Blue Star21.05%2
6Bajaj Electricals19.55%1
7Johnson Hitachi29.31%6
8IFB Industries22.04%4

Symphony has scored 8 for having the highest ROCE and Bajaj Electrics scored 1 for having the lowest ROCE.

ROE

Sr. No.Company NameROEScore
1Havells India19.795
2Voltas15.863
3Whirlpool21.417
4Symphony34.778
5Blue Star18.364
6Bajaj Electricals12.971
7Johnson Hitachi20.566
8IFB Industries15.372

Here too, Symphony scored 8 by having the highest ROE and Bajaj Electricals scored 1 by having the lowest ROE.

D/E Ratio

Sr. No.Company NameD/E RatioScore
1Havells India0.036
2Voltas0.045
3Whirlpool08
4Symphony0.045
5Blue Star0.452
6Bajaj Electricals0.771
7Johnson Hitachi0.027
8IFB Industries0.045

Whirlpool being a 0-debt company has scored 8. Bajaj Electricals has the highest DE ratio and has thus scored 1.

Final Standings

RankCompany NameFinal Score1 Year Returns
1Whirlpool26-10.5%
2Symphony24-32.5%
3Johnson Hitachi21-30.7%
4Voltas19-10%
5Havells India1726.3%
6IFB Industries16-38.5%
7Blue Star14-20%
8Bajaj Electricals106.3%

Whirlpool is on the 1st position with 26 points, Symphony on 2nd with 24 points, Johnson Hitachi on 3rd with 21 points and Bajaj Electricals is on the last position, that is 8th with 10 points.

We have also mentioned the 1 year returns of these companies. One should not think that the company has scored good but still has negative returns. Last year has been a very turbulent year. For example, a company like Symphony who has even given returns of 300% now has negative returns. But these falls are justified because they have had a corresponding run.

The point here is to focus on the fundamentals of the company. Here, we have analyzed the company based on their current fundamentals. Also, the qualitative analysis of these companies will provide with a better outlook towards them

And quantitative analysis along with qualitative analysis will give a better understanding of which company is worth investing from here on.

Note:

  • We are not, in any case, suggesting buying stocks of any of the companies mentioned above. We have just provided a study on these companies.
  • All the data used is of Trailing Twelve Month (TTM)

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