One of the dark horses in this Samvat would be the defence play. The rally that we have seen in the defence stocks is not even a blink and miss rally. It just managed to sustain through the course of the year. But will this theme hold out in Samvat 2079 as well?
The kind of rally that we have seen in defence stocks makes me think that it is not the beginning but rather we are somewhere in the middle of the rally because I still feel that stock-specific opportunity is there. There are still opportunities, valuations are still not so expensive. So I think the theme should still continue and should play into the positive. There are stocks there which are still available at decent valuations, there are companies where the government wants to disinvest and so some privatisation will happen there. I think there are still opportunities there.
Wheels India is an auto ancillary company. Its primary focus is on domestic markets. Can you talk to us about this idea for the next one year? What are the things that you expect to change in this company that can lead to rerating?
Wheels India is part of the TVS Group and as we know the group has been doing well and there is conservative growth. Wheels India has been into the steel rim manufacturing business. They are amongst the largest automotive steel rim manufacturers and they have a global presence too.
As far as the domestic market is concerned, they are present in light and medium commercial vehicles (LMCVs), passenger vehicles and globally they are also present in the off-road vehicles and tractors. They have 73% of the sales coming from domestic and about 17% coming from global sales.
Some factors were plaguing this company in the last few quarters and that is why we are getting it at such decent valuations. Logistic costs and raw material costs had all gone up. Now we have seen some stabilisation there. The company over the long term, in the previous years also has been a consistent dividend paying company. It is a cash rich company and there is no debt in the books. It will continue doing well and I feel that with total opening up happening globally also, demand for tractors and offroad vehicles rising, their global footprints will continue and they should keep on doing well.
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Looking at the track record of dividend and profitability, I think the valuations at which it is trading right now is pretty attractive. Once the negatives which were there over the last few quarters improve, going ahead the stock will come back and show the kind of valuation it used to trade in earlier. There is a decent potential in this company and it is a good long-term investment for investors.
is your pick. You have been vocal about Century Enka in the past as well. What according to you is working well for Century Enka in the entire Birla Group pack?
So, it is a Birla Group company and has been into the synthetic fibre business in the last so many years since 1965. They have a good presence in the Nylon Tyre Cord Fabric which is used as reinforcement for bias tyres and the other is a Nylon Filament Yarn business. It is basically another textile based business where they have a good presence.
They have almost 23% market share in the Nylon Filament Yarn business and a 25% market share in the Nylon Tyre Cord Fabric business. The management has been very conservative and not been investing money in future capacity and such a conservative management is now looking and investing money into the businesses. They already have a capex plan going where they are spending about Rs 300-350 crore in capacity crunch in for their businesses and they are also going into polyester tyre cord fabric which is used for radial tyres.
So I think the growth which has been coming from capacity utilisation will go up further with additional capacity coming in and the margin will also improve. When they have different kinds of value-added products coming into the market, they can use their capacities for different products where the margins are better.
They are also recycling the nylon fixed waste and getting that back as part as raw material and even selling in the global market. Depolymerisation is helping them achieve their targets. If you see the valuations also, the company is very attractively priced and the market cap is almost half the sales last year. At such decent valuations, there is a possibility of rerating because the capacity is coming in. It is a good investment from that angle.
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