Analysis of Motor Sector Shares - Invitation for a fruitful Discussion

hariesha

hariesha

Vice President - Equity Analytics

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Join date : 2011-03-14

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First of all this analysis is a routine exercise for me, and for my information, which I would like to open for a fruitful discussion. NOT A BUY, SELL OR HOLD RECOMMENDATION.
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I did some analysis on the earnings of Motor Sector shares, as there is some enthusiasm on certain shares in the sector like COLO and UML. Further this is the sector that most analysist's expect with very promising results in the immediate future.

This valuation is only on Earnings and PER based. But the counters which are attractive on PER basis in this analysis are also with fair PBV ratios.

I.e.: DIMO net asset value is Rs.522.31 as at 30th June 2011. Current PBV ratio is 2.488. But there last asset revaluation was in 2008, prior to the dawn of peace. So the current asset value should be substantially more as they have considerable land bank in Colombo. COLO net asset value is Rs.168.55 and PBV ratio is 2.9 and again with no latest re-valuations.

Please share your information and knowledge on these shares.

Mon Oct 10, 2011 11:04 pm by **hariesha** · Mon Oct 10, 2011 11:04 pm by **hariesha**

I would like to start with DIMO.

• DIMO is trading on forward PER of 4.5, may be the lowest PER ratio in the entire CSE. Only share open to all segments in the motor sector; Luxury Cars, Luxury SUVs, Normal Cars, Passenger transportation, Light and Heavy commercial trucks, Construction machinery, Agricultural machinery, Tires, etc. Further they are diversified into non-motor segments such as Lighting, Power tools, Bio-medical equipment, etc.

• Sales are not exposed to government permits, hence more reliable and not expose to future tax hikes as most of the sales are from non-luxury segments and more vital segments to economic growth.

• Last month they completed a mammoth sale for the Defense Ministry, through Indian line of credit (benefited to ASHO also).

Tue Oct 11, 2011 8:02 am by Quibit · Tue Oct 11, 2011 8:02 am by Quibit

Why AMW not in the list?

Tue Oct 11, 2011 8:15 am by Slstock · Tue Oct 11, 2011 8:15 am by Slstock

Quibit wrote:Why AMW not in the list?

Good work hariesha . We can clearly see DIMO is the most undervalued but the most stagnant also.

Quibi,

AMW is not traded on CSE now isn't it?

Tue Oct 11, 2011 10:07 am by **hariesha** · Tue Oct 11, 2011 10:07 am by **hariesha**

Yes, DIMO is one of the most stagnant shares in the market. This is possibly, the price it’s trading as most retailers can’t afford it. To buy 100 shares you have to allocate Rs.135,000/- at current price. The liquidity factor is the other. If you want a big quantity you can’t collect without moving price. As we can see this trend in PHAR, SLND, ASHO, etc.

This same scenario happened to CFIN in last year. It was the mostly sound share in the financial sector with a PE of around 6X when all others were at above 15X. It was traded in Rs.820/- to Rs.870/- for about three months. Then dropped to Rs.750/- levels. All of a sudden it started the climb. Lot of people exited from it when it reached Rs.900/- level, as it was a good price for the stagnant share. But it went up to its true value and hit Rs.1, 700/-, giving more than a 100% return within a very short period.

Despite all this DIMO is good share to keep at least 100 shares in the portfolio.

• Since it’s illiquid very difficult to buy on the run.
• May be only fundamentally sound share with a very good management without a share split announced yet. So it can happen at any time, possibly when the market conditions become good.
• Asset re-valuation is pending.
• Last year dividend was Rs.61/-

*** This is not a Buy/Sell/Hold recommendation ***
*** I couldn’t declare my exposure to motor sector earlier. I have a considerable exposure to UML and COLO, UML recommended by my advisor and COLO I bought around Rs.300/- after seeing an article in this forum, which prompt me to study the entire sector. DIMO I started buying yesterday. ****

Tue Oct 11, 2011 11:33 am by sriranga · Tue Oct 11, 2011 11:33 am by sriranga

Good work.
We need more like this analysis in this forum.
Well done hariesha.

Tue Oct 11, 2011 2:36 pm by Rapaport · Tue Oct 11, 2011 2:36 pm by Rapaport

The mentioned motor sector shares always looked very attractive but currently the biggest hindrance in my opinion is the changes in the taxation in the coming budget. This will have an impact on the sector and the risk needs to be included in the pricing.

Liquidity in shares like DIMO and expensive share price has kept this share behind in terms of PER and its also interesting to note that there are people who are not allowing its price to appreciate by putting significant sell orders at various levels. This phenomenon is also somewhat seen for COLO where large sell orders came in at around 500 not allowing it to appreciate. We may call this a strong barrier.

This quater the Nano sales will be included in the DIMO earnings and till August end they had sold roughly 650 Nano's according to one of their sales representatives. COLO had orders for approximately 125 Piccanto's in two weeks since the launch and many orders in the pipeline for its SUV's.

http://forum.srilankaequity.com/t9090-colo-colonial-motors-excellent-future-forecasted?highlight=colo

Tue Oct 11, 2011 2:53 pm by Rapaport · Tue Oct 11, 2011 2:53 pm by Rapaport

This is old DIMO story (2008) but see if you can grasp a few tips:

http://www.lankabusinessonline.com/fullstory.php?nid=2055640690

Tue Oct 11, 2011 3:05 pm by Slstock · Tue Oct 11, 2011 3:05 pm by Slstock

Would like to highlight the below from a 04 Jul, 2008 article

http://www.lankabusinessonline.com/fullstory.php?nid=2023027980

"Analysts said DIMO's earning per share before the share buy-back was 17 rupees but are forecasting that EPS may drop to about 14 rupees if its interest burden increased by 80 million rupees as a result of funding the buy-back through debt"

Note that the EPS of 17 they are talkign about was when the buy back was at Rs 160. PE of 9+. Even when the share fell to Rs 100 during these difficult times the PE would be 6.

Now the PE is around 5+.

I rest my case.

Tue Oct 11, 2011 3:25 pm by Rapaport · Tue Oct 11, 2011 3:25 pm by Rapaport

Yes SLStock you are spot on.

The company still has fears of Hostile major shareholders getting onto their board in my opinion. As a result few big shareholders have been gradually exiting DIMO at low PER and selling directly to the market. I am sure there are enough HNWI who can gobble their stakes but it did not happen or maybe it was not allowed to happen that way??

Tue Oct 11, 2011 7:12 pm by RichDad · Tue Oct 11, 2011 7:12 pm by RichDad

Great work. Keep it up!

Wed Oct 26, 2011 12:03 am by Kumar · Wed Oct 26, 2011 12:03 am by Kumar

Great work.
Hope DIMO will pick up in near future.

Wed Oct 26, 2011 9:08 am by ShareShares · Wed Oct 26, 2011 9:08 am by ShareShares

Motor vehicle importers profits decline

http://www.digathanews.com/newsarchive/latest/motor-vehicle-importers-profits-decline

Wed Oct 26, 2011 11:19 am by Rajaraam · Wed Oct 26, 2011 11:19 am by Rajaraam

ShareShares wrote:Motor vehicle importers profits decline

http://www.digathanews.com/newsarchive/latest/motor-vehicle-importers-profits-decline

ShareShares, Eventhough article reffered in your post says profits of the Motor import companies have falllen I cant beleive it coz as per June Q results a massive profit increase have been reported by all listed motor companies. Sep. Q results are not yet published.

Wed Oct 26, 2011 12:41 pm by Slstock · Wed Oct 26, 2011 12:41 pm by Slstock

ShareShares wrote:Motor vehicle importers profits decline

http://www.digathanews.com/newsarchive/latest/motor-vehicle-importers-profits-decline

Let me highlight what the article was trying to say

"Nevertheless, the sector saw a 13.4 percent quarter-on-quarter drop in earnings - a sign of the fading effects of the tax revision, the report said, referring to the re-imposition of some import duties by the government.

"Hence, we are not anticipating abnormal profit growth in the forthcoming periods that was seen in the last quarter," Lanka Securities said.

"But with the prevailing economic conditions in the country and growing demand along with per capita income we anticipate sustainable growth in the companies in the sector."

Sri Lanka's economic growth has begun to accelerate with the end of its 30-year ethnic war in 2009 with vehicle imports remaining high."

Ofcourse this sustainability depends on further non drastic government intervention. Motor companies with other diversification into other sectors and diversification within the sector ( all classes of passenger, lower , middle and higher end vehicles) might sustain better.

Wed Oct 26, 2011 12:57 pm by Slstock · Wed Oct 26, 2011 12:57 pm by Slstock

Also note the below,

http://lbo.lk/fullstory.php?nid=1906266800

Sri Lanka new vehicles up 31-pct in August
Oct 26, 2011 (LBO) - New vehicles registered in Sri Lanka rose 31 percent to 45,279 in August 2011 from a year earlier, though lower than a peak of 48,157 seen in June, official data showed.
Car imports rose 62 percent to 5,055 in August, three wheeler vehicles widely used as taxis rose 30.4 percent to 12,643, and motorcycles rose 18.8 percent to 20,861, data released by the Central Bank said.

Goods transport vehicles rose 61 percent to 1,637 and buses rose 49.2 percent to 388.

Up to 2011 August, 337,576 new vehicles had been registered, up 53.3 percent from a year earlier.

Sri Lankans had registered 164,837 new motorcycles, up 25.3 percent, 88,828 three wheeled vehicles up 62.3 percent, 39,276 motor cars, up 446.3 percent.

Sri Lanka's motor car imports rose after the state cut import taxes for ordinary citizens and also gave tax slashed permits to state workers.