ET Markets
Stock Analysis, IPO, Mutual Funds, Bonds & More

Valuation in some auto stocks very reasonable: Sachin Shah, Emkay Investment

There may have been a bit of overreaction in Tata Motors, says the Emkay Investment fund manager.

ET Now|
Feb 08, 2019, 04.30 PM IST
Sachin Shah-Emkay
Some of the cost pressures have eased out and so the fourth quarter is going to become even more critical now, Sachin Shah, Fund (Portfolio) Manager, Emkay Investment Managers, tells ET Now.

Edited excerpts:

Are we overdoing the concerns around the third quarter numbers for Tata Motors? Do you see any sort of a revival in sight for JLR because it was once a cash cow for the auto major?

I agree that there is a bit of an overreaction at this point in time. The valuations have become extremely attractive and these are just one or two quarter trends which do not really decides what is going to happen in the next two, three, four years.

All said and done, JLR is a very strong franchisee. There is a decent amount of demand for their models across the world. So, we are not overly pessimistic. Also on the domestic side, a lot of positive things are happening. On the commercial vehicle (CV) side also they have regained some of the market share.

Even on the passenger vehicle side, they have been launching a lot of new models with a decent amount of response. I completely agree with you that there is some bit of an overreaction at this point in time, vis-a-vis the way the stock price has fallen today.

What is the deal going on with the auto pack? A lot of these concerns should have already been priced in because China de-growth is not anything new. Going forward what is the view like? Though some companies are coming out with decent numbers, the selling does not seem to stop?

Well yes, you are right. I think it is also to do with the overweight and underweight with some of the funds and this is where the selling is actually happening. I belong to the camp that believes some of the valuations are very reasonable.

For example, if I look at some of the two-wheeler companies like Hero Motors, the valuations today are at maybe just about 15 times on March 19 numbers. In case of Mahindra & Mahindra, the valuations are just about 15 times on March 19 numbers. These are businesses with very strong franchisees for the last so many years. These are cash generating businesses and so a couple of quarters of bad growth in terms of volume does create panic but this is where long-term investors can find opportunities.

What do you make of the third quarter earnings season so far? To what extent have there been hits and misses?

Third quarter earnings have been a mixed bag. We have seen a lot of companies delivering decent amount of top line growth but the margins have not been so great. We have seen margin pressure across the board in most of the businesses which is where some bit of the challenge is.

Clearly, the raw material prices are high. Oil prices, rupee depreciation all of that seems to have affected the margins. But can some of these companies actually hike prices? Some of the cost pressures have also eased out and so the fourth quarter is going to become even more critical now, because in the third quarter, where the top line growth has happened is very clear, but the margins have been under pressure across the board.

Also Read

How Sachin Shah avoided capital destruction in his PMS

Emkay’s Sachin Shah finds value in these two sectors

Why Sachin Shah is betting on discretionary consumption

Economy is entering virtuous cycle now: Sachin Shah, Emkay Investment Managers

Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links

Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service