Omax Autos Ltd.
Market Price :- 98 (4-May-05)
First Of all, we have to understand that for any company's stock price to grow irrespective of where the market is going, there must be 3 things which have to be considered :-
1.) Cheap Valuation Compared to Growth
2.) Shareholder oriented Management
3.) Generally a company that is not in a cyclical industry
Sincerely believe that Omax Auto Will achieve a price of Rs. 200 within a period of 1 and half year because of the following reasons:-
1.) Omax Auto fulfils our first condition of Cheap Valuation :-
i.)P/e - 10.41
ii.)RONW % - 29% (This is very good compared to other companies)
iii.)5 year CAGR - 30%
iv.)TTM Profit Growth - 29%
The Company is going in for Expansion by putting up a factory in Bangalore and Gurgaon to manufacture Sheet Metal Tabular and other components. can safely assume 25% growth for the next 3 years on the basis of general growth rate in 2 wheeler industry (around 11%, which is very very high for an industry as a whole, India's total economy is growing at a rate of around 6 %) Since, Omax is a major supplier to the 2 wheeler industry, one has to see Two wheeler industry growth rates. Now if growth is 25%, then the P/e must be at least 20, which will make the price at least approx 200 at the current earnings. If earnings increase next year then the target will be revised to higher levels.
2.) It also fulfils our second requirement of Shareholder Oriented Management. The company has been continuously paying dividend since 1992 and has been continuously increasing dividend since the same period. It belongs to the Munjal (Hero) Group - the same group which is the number one manufacturer of Cycles in the World (Hero Cycles). Hero Honda is the flagship company of the group, and 75% turnover of Omax Autos is for Hero Honda. The company has also given bonus in 2002.
3.) Since Auto Ancillary is not a cyclical Industry, especially two-wheeler industry because even if the economy is not good, then people will sell cars and buy two wheeler. When economy is good, people who don't have any vehicle will buy two wheeler. So Both ways, Two wheeler industry is not cyclical. Hence, Auto Ancillary Will grow with Two Wheeler Industry and maybe faster than that and Omax Auto will grow faster than overall industry because of the brand name that it enjoys and the market that it has created for itself.