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