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Thursday, August 13, 2009

Munjal Auto Industries Ltd and Enkei Castalloy Ltd:What should you do with them?

1)Scripscan:Munjal Auto Industries Ltd

Story:Munjal Auto Industries, a part of the Hero group of companies. Its RoE over the past five years has averaged over 50%. It manufactures light engineering automotive products and does high quality stamping, electroplating, painting and forging. Munjal Auto’s revenues have been growing at a decent pace over the past five quarters, but operating profit growth has been muted due to rising operational costs, especially of raw materials. Its operating profit hardly grew over the past five quarters, as auto-makers, faced with a slowdown in sales, reduced their demand and squeezed component manufacturers. Munjal Auto’s average operating margin is 12%. The stock is reasonably priced at present levels.When the auto sector bounces back, this is one stock that would be worth having.It is worth accumulating now or at slight lower levels.

2)Scripscan:Enkei Castalloy Ltd

Story:Enkei Castalloy, a collaboration with Enkei Corporation of Japan, the world’s second largest manufacturer of alloy wheels, combines high RoE and reasonable valuation. Enkei leads the Indian market in manufacturing cylinder heads and alloy wheels for two- and four-wheelers and is a single-source supplier of many critical engine parts. The company also has a good presence in the export market particularly in the US and Europe. Its recent performance has been somewhat dismal thanks to the slowdown in the sector itself. Its average operating margin was 13%. Its RoE over the past five years has averaged over 25% while its sales to market cap stood at over 2 times and the market cap to operating profit ratio was an extremely reasonable too.Enkei has already risen 500% from its march lows.At present prices apply caution and buy it at sub 35 or low 40 levels.

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