Auto Cos Have a Load of Free Cash, Hitch a Ride for Big­ger Div­i­dends

The Economic Times - - Companies: Pursuit Of Profit -

ET In­tel­li­gence Group: For riska­verse in­vestors who pre­fer eq­ui­ties pri­mar­ily for div­i­dend in­come, theau­to­sec­tor­could­beemergin­gas a favoured choice for the next few years.Freecash­with­au­tomak­er­sis ex­pect­ed­toin­creasethankstos­mall cap­i­tal ex­pen­di­ture need and ex­pand­ing profit bases. This means au­tomak­ers will have more cash avail­able to dis­trib­ute as div­i­dends. An­a­lysts said div­i­dend pay­out at In­dia’s largest car­maker Maruti Suzuki is likely to be higher in the com­ing years, fol­lowed by Eicher Mo­tors, Ashok Ley­land, Hero Mo­tors and Ba­jaj Auto.

In­dian au­tomak­ers have neg­a­tive work­ing cap­i­tal — num­ber of days to pay to its sup­plier more than it gives to deal­ers while sell­ing cars — and lim­ited cap­i­tal ex­pen­di­ture has ex­panded the ra­tio of free cash flow to profit to 50-80%, while au­tomak­ers have div­i­dend pay­out be­tween 20 and 50%.

The rate is ex­pected to grow fur­ther. A CLSA note said the ra­tio of free cash to net profit will reach 87%, 74%, 73%, 71%, 57% on an av­er­age be­tween FY 18 and FY19 for Ashok Ley­land, Eicher Mo­tors, Hero Mo­toCorp, Ba­jaj Auto, and Maruti, re­spec­tively.

The pro­jected free cash to net profit in­di­cates that Maruti, Ashok Ley­land, and Eicher could raise their div­i­dend pay­outs by 25-30%, The phar­ma­ceu­ti­cal sec­tor was the high­light among changes in Jhun­jhun­wala’s port­fo­lio in June quar­ter. His wife Rekha Jhun­jhun­wala’s name also fig­ures in sev­eral stocks. Jhun­jhun­wala, known as the Big Bull of Dalal Street, picked up 1.3% in Ju­bi­lant Life­sciences in the quar­ter and in­creased his hold­ing marginally in Lupin and Aurobindo Pharma. The stocks where he cut hold­ings in­clude Fed­eral Bank, Karur Vysya Bank, Tata Mo­tors DVR and Delta Corp. Dwarikesh Sugar Ut­tam Sugar Sam­tex Fash­ion Dham­pur Sugar Cosmo Films Ster­ling Tools Chen­nai-based Dolly Khanna, whose port­fo­lio is man­aged by her hus­band Ra­jiv Khanna, has stuck to her favourite spe­cialty chem­i­cals space in the June quar­ter. She added Rain In­dus­tries and Ak­shar Chem­i­cals to her port­fo­lio dur­ing the pe­riod. Shreyans In­dus­tries, which has in­ter­ests in pa­per and tex­tiles sec­tors, was an­other ad­di­tion to Khanna’s port­fo­lio.

Rain In­dus­tries Shreyans Inds. Ak­sharChem (I) Tata Me­ta­liks Ster­ling Tools IFB Agro Inds. 1.03 1.12 1.76 — —

1.27 1.09 1.04 1.22 1.58 1.23 —

— 1.08 1.73 2.45 4.31

— — — 1.06 1.65 1.56 The buy or sell moves of well-known in­vestors on Dalal Street are al­ways keenly watched by mar­ket par­tic­i­pants. takes a look at what ace in­vestors such as Rakesh Jhun­jhun­wala, Ashish Ka­cho­lia, Anil Ku­mar Goel and Dolly Khanna have bought and sold in the quar­ter ended June. These re­puted in­vestors’ names have also shown up for the first time in some com­pa­nies but it could not be as­cer­tained if they bought the en­tire stake in the June quar­ter as listed com­pa­nies do not name an in­vestor un­less they hold 1% or higher stake.

ET — Sanam Mir­chan­dani

Pro­fes­sor Shivanand Mankekar, a low pro­file man­age­ment pro­fes­sor, is said to favour a con­cen­trated port­fo­lio of a few stocks. Some stocks are also in the name of his wife Laxmi Shivanand Mankekar. In the quar­ter ended June, the Mum­bai-based in­vestor (and his wife) largely main­tained his port­fo­lio of stocks that in­clude Se­quent Sci­en­tific, Strides Sha­sun, Tal­walkars Bet­ter Value Fit­ness and Lak­shmi Vi­las Bank. Ka­cho­lia, known for his multi-bag­ger mid- and small-cap picks, has set his sights on the pack­ag­ing sec­tor. In the June quar­ter, Ka­cho­lia added MoldTek Pack­ag­ing and Time Techno­plast to his port­fo­lio. He added 0.3% in rub­ber chem­i­cal man­u­fac­tur­ing com­pany NOCIL which he had en­tered into a quar­ter ago. Shreyas Ship­ping was the only stock where he sold a size­able por­tion, cut­ting stake by 0.45% to 1.94%. Lokesh Ma­chines (Ashish & Sus­mita Ashish Ka­cho­lia) Mold-Tek Pack. GTPL Hath­way Time Techno­plast NOCIL Shreyas Ship­ping Renowned value in­vestor Goel is putting his weight be­hind the sugar sec­tor as he has pur­chased ad­di­tional stake of 0.9-2.3% in Dwarikesh Sugar, Ut­tam Sugar and Dham­pur Sugar. He has cut stake in Ut­tam Sugar but only slightly. The mar­ket out­look for sugar com­pa­nies has been pos­i­tive due to re­cent hike in im­port duty and tight sup­ply. Dwarikesh Sugar Ut­tam Sug.Mills Sam­tex Fash­ion Dham­pur Sugar Cosmo Films Ster­ling Tools Se­quent Scien Strides Sha­sun Tal­walkars Lak. Vi­las Bank Gal­axy Ent.Corp. 2.03 1.46 1.11 3.13 4.21 3.25 7.73 7.05 3.12 3.2 4.21 3.37 5.3 1.97 2.07 — — — 2.82 1.94 1.24 6.66 6.15 3.4 3.66 1.94 3.38 5.3 1.97 2.07 while Ba­jaj Auto, Hero Mo­toCorp, and TVS Mo­tors has po­ten­tial to hike it by 10-20%.

Maruti Suzuki is the most likely can­di­date for a div­i­dend pay­out hike in the near term as its par­ent Suzuki Mo­tors will be in­vest­ing close to ₹ 18,500 crore for ex­pand­ing ca­pac­ity at their new plant in Gu­jarat. The new fa­cil­ity in Gu­jarat will act as con­trac­tors to man­u­fac­ture for Maruti, while full own­er­ship with re­main with Suzuki Mo­tors. Suzuki Mo­tors has 56% stake in the In­dian sub­sidiary Maruti Suzuki. Maruti’s av­er­age div­i­dend is 22% in the past two years, how­ever, based on the pro­jected free cash flow to net profit it can hike that to 45-50%.


1.03 0.04 0.03 -2.45 -4.31 1.27 1.09 1.04 0.16 -0.07 -0.33 5.14

2.03 1.46 1.11 0.31

-0.45 2.27 2.01 1.07 0.9 -0.28 -0.46

— -0.01 — — —

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