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    Fundamentals backing tyre stocks; 2 stocks to bet on: Sandip Sabharwal

    Synopsis

    “We are holding Apollo tyres in slightly bigger quantities and Ceat in somewhat smaller quantities. I am more bullish on Apollo because of the global nature of their business. The fact that their European operations have hedged energy costs for nearly one year and so to that extent, profitability will not get impacted there.”

    Sandip SabharwalAgencies
    “I do not think we are going to see such huge growth coming in and so there will be growth for sure but not very huge growth. We have to be selective where we want to be invested”, says Sandip Sabharwal, asksandipsabharwal.com.

    Are tyre stocks going through one-day crazy moves or is there something fundamental which is backing the prices?
    It is definitely something fundamental. We bought Apollo Tyres at Rs 190 and so I am happy it is performing but the drivers were very clear; global rubber prices were falling, the crude inputs are stabilising and tyre companies' results last quarter were above expectation despite the input prices being so high. Most of these stocks were trading at single digit valuations. I think now some sort of frenzy is coming in. So, I am not a buyer now but I hope people keep on buying.

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    If you are still bullish on the entire space and if you still think that money is likely to be made, which are the stocks that you would identify?

    We are holding Apollo tyres in slightly bigger quantities and Ceat in somewhat smaller quantities. I am more bullish on Apollo because of the global nature of their business. The fact that their European operations have hedged energy costs for nearly one year and so to that extent, profitability will not get impacted there.

    Domestically they have done much better than expectations. Last quarter’s results were very good and the management has a stated objective of not going in for excessive capex and actually generating cash flows over the next two-three years and getting debt to operating profit levels at more reasonable level. I think things are set for that company and typically when companies move from a high capex oriented scenario to a more cash flow generating scenario with improving return ratios. shareholders tend to make money. Directionally they should do well.

    Something is going to happen. All these companies are operating in a business where they need to be bullish about what is going to happen in the festival season. They have no option. Us as investors have to take a view on how realistic they are and out of what they are saying, it is going to come through.

    The festival season comes every year and we have to compare this festival season to the last festival season. Interest rates are relatively higher, inflation is relatively higher this year although the reopening has happened at a much better level this year.

    As a combination, I do not think we are going to see such huge growth coming in and so there will be growth for sure but not very huge growth. We have to be selective where we want to be invested. We own Aditya Birla Retail, where the management has done the right thing in deleveraging their balance sheet and getting in strategic investors. They are well positioned to improve profitability. Shoppers Stop is something which I do not track.




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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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