Highlights: - Lack of clarity on accounting methodologies and elevated valuations could restrict re-rating in the near-term. - Top-line growth will be driven by network expansion and new products. - Adoption of asset-light manufacturing and retailing should have a positive rub-off on margins.
- Competition from foreign brands is a key risk.
There is a general theme giving by many financial consultants that buy right sit tight but market in general doesn't like to be fooled. Since last one year we see that market doesn't care about the name of the company or the group anything bad in corporate governance or any type of clever movements are beaten down heavily. If I speak technically in last 2 years stock has given tremendous returns it came in bull mode around 14000 in 2017 and has made high of 36370. And since September 2018 we are seeing a correction. In last few days we came around the news that some accounting policies has been changed and company is facing trouble due to GST and Destocking of inventories. Company may also face competition from other Retail brand like Aditya Birla Fashion. I as an Independent Analyst believe that you cannot always go by the name, nobody knew in that time that HDFC, Infosys, Eicher Motors or any other such company would reach at such heights, but we are seeing correction in mostly all Auto Sector Companies.
The first signs of trouble emerged last year when the company said its volume growth came to a standstill (down 0.1%) in Q2. The stock has been under-performing since. Volumes recovered in Q3, registering a 12% growth. This quarter had the benefit of a delayed festive season. However, the volumes did not translate into a higher revenue growth. According to analysts, adjusted for accounting changes, revenue growth in Q3 stood at 14%. This is less than the 17-22% growth the company had been clocking in Q1 FY18 to Q1 FY19. Revenues in Q2 had increased 10%. Cumulatively, revenue in the first nine months of FY19 are up 15.5%. This has not been adjusted for the accounting change in Q3. In the previous two fiscal years, revenues increased 19-20% in the first nine months. Nevertheless, this 15.5% revenue growth is nothing to scoff at. However, tracking its historical growth rates and an expansion in its product portfolio and retail network, investors are expecting better growth rates in the coming quarters.
If we don't go into much of fundamentals and only focus on technicals then we can expect stock to reach levels of around 17000. Stock has a support at 19900 in daily charts then another straight fall will come if stock doesn't take support. (This stock is trading at 48 times price-to-earnings and seven times market capitalization/sales on FY20E estimates.)