Amar Ambani of IIFL spotted Lumax Auto Tech on 2nd September 2014 when it was languishing at Rs. 200. He was quick to realize that auto component stocks had been beaten out of shape in the slowdown and that they had great potential ahead. He immediately rushed off an “Express Idea” buy call and promised a target price of Rs. 245 within 1 to 3 months. He pointed out that there would be a “strong revival” for the auto industry and that Lumax would be the “big beneficiary” thereof.
Well, within just three trading sessions, Lumax Auto crossed the target price of Rs. 245 and gave the promised return of 22.5%.
Surprisingly, Amar Ambani did not enhance the target price. Instead, he announced a “call success/ closure”.
Daljeet Kohli woke up to the potential of Lumax on 21st November 2014 when the stock had surged to Rs. 280. He advised a buy on the basis that the valuations were “attractive” in the context of the strong volume growth expected, the comfortable debt:equity ratio and the robust ROCE of 17%+. Daljeet promised a target price of Rs. 352 for the stock.
Today, just 45 days later, Lumax Auto Tech effortlessly crossed the target price of Rs. 352 set by Daljeet.
The result is that if you had acted on Amar Ambani’s advice, you would be basking in gains of 76% (in about 4 months). If you had acted on Daljeet’s recommendation, you would be sitting on gains of 25% (in 45 days).
Anyway, there is no need to despair if you didn’t act on either recommendation because in the latest Outlook Business magazine, Daljeet has declared Lumax Auto Tech as his stock pick for 2015.
Daljeet has also today issued a detailed research report in which he has explained the entire nitty gritty of the stock and why it is a great buy at present. Let’s pay attention:
“Lumax Auto Technologies (LATL) is a part of D.K. Jain group, engaged into manufacturing of various spare parts for the auto industry. Ever since its inception in 1981 the organization has gone through radical changes and at present serves as a key supplier of several components (includes Head lamp, Tail lamp, Frame Chassis, Adjustor Motor, Handle bar, Mufflers, Gear shift lever, Parking breaks and other small parts) to the two- wheeler and the passenger car industries. Its key customers include Bajaj Auto, Piaggio, Honda Motorcycles and Scooters, Maruti Suzuki, Toyota and Tata Motors. Strong tie-ups with these OEMs will entail large business opportunities in the next few years. We expect company to witness strong volume growth coupled with margin expansion in the next couple of years on the back of revival in automotive demand and value added products. With comfortable debt to equity of just 0.2x & strong ROE of ~22% we believe the company has potential to yield very high returns in next 2-3 years. The company has a consistent dividend track record with dividend payout of above 25%. We find current valuation attractive, hence we recommend to BUY LATL with target price of Rs. 575 (10x FY17E EPS).”
Daljeet’s revised target price is Rs. 575 which means that there is a potential of 61% gains from the CMP of Rs. 356.
Daljeet has also highlighted the risk factors in the stock that we need to pay attention to.
Now, the onus is entirely upon you to carefully ponder over the information and especially the risk factors and take an informed decision in the matter. You must remember that if the stock pick flops, you cannot blame anyone but yourself.