Prime Stock Recommendation: A stock at an intersection of several growth opportunities
Domestic slowdown and tariff fears have led to a correction in this quality stock!
N V Chandrachoodamani
Chandrachoodamani started his capital market career in mid 2000s with Equity Intelligence India and then worked with several capital market Intermediaries in various roles over the last 15 years. Most of his career experience has been in equity research and PMS. Most recently, he was with MOAT, a PMS firm. He is a graduate in mathematics, a post graduate in finance, and holds a CFP certification. LinkedIn|Twitter
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4 thoughts on “Prime Stock Recommendation: A stock at an intersection of several growth opportunities”
Thank you, i agree capex may become stable and might not grow at the same. Any thoughts on Schaeffler? Seems like its still expensive compared to Timken. But it also a bit diversified compared to Timken? T
The promoter holding also remains same in case of Schaeffler , however this is always a risk, i saw several parent companies outside India reduce stake or sell the company maybe because of expensive valuation. Whirlpool, Federal-Mogul and CreditAccess Grameen are recent examples
Schaeffler is a high quality Co. I guess it’s family owned Co and so the stale risk, as pushed by activist investors, is not there in it
Also Schaeffler is much bigger than Timken and as you said more diversified
As far as our call is concerned, it’s more opportunistic than saying that Timken is better than Schaeffler
There is growth visibility with new plant and is coming at a relatively better valuation, that’s all
Hope this clarifies
Thank you
SKF and Schaeffler India Ltd are also strong players in this area, any reason you did not recommend them?
I see SKF PE is cheaper to Timken, they are also manufacturing bearings that are suited to EV sector
Schaeffler was always known for innovation
Timken i see has strong impact from Railways revenue, but what happens if govt slows down capex to reduce deficit?
which company will be impacted more?
Please note, i am not questioning your analysis, just listing other things and wondering if you have looked at them.
Welcome your query sir,
There is no particular reason to ignore Schaeffler.
There was more revenue visibility coming from Timken especially with the new plant coming up. If it would take 6-7 yrs for a new plant to reach optimum utilization, Timken mgmt. was expressing confidence to do it in 3 years as it is already having an import business to substitute and those industries itself are importing a lot of bearings required.
As far as railways capex is concerned, a lot of the announced capex has moved towards ordering stage and execution is still underway. The ones like DFC (funded by Japanese Govt) and Metro rails in States (funded by Centre + States + PPP) are also under execution. All these already announced capex will put more stocks on the rails and hence move the base higher for consumables demand. Plus the Govt. capex cycle is not going to go away, but it is obviously not going to increase. From 7 lac crore prior to Covid, it has now moved to 10-11 lac crore and if it stabilizes at 10 lac crore and maintain the allocation to Railways, it is Ok.
Hope Metro rail capex funded by States or PPP will keep continuing.
We looked at SKF and it was also part of our auto++ smallcase. Bcoz of the demerger underway, we decided to avoid it. The demerger would result in 2 Cos, both cyclical, exposed to different cycles – industrial and auto. The hedge that if one segment will do well if other is not will go away and investors will have to manage it. So, we decided to avoid SKF
Hope this clarifies
Please do feel free to raise your questions and these are very valid questions. We will be only happy to answer.
Thank you
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