Atul Auto or Lumax Auto Tech

I am not sure one should worry too much about the steep drop in stock prices from the peak. It is a fact that the rise was also very rapid. Some correction is inevitable.

It is a difficult choice to make between Atul Auto and Lumax Auto Tech. Both have their strenghts and weaknesses. Atul Auto is an OEM, which has its advantages and disadvantages. I suppose as an OEM, it can command higher margins as it has a much-in-demand product. At the same time, if the demand falters owing to say sluggishness in the economy, there is no fall back option.

Lumax Auto Tech is an ancillary/ component manufacturer. The advantage is that it supplies to several OEMs of commercial and non-commercial vehicles and has something to fall back on if one segment of the auto industry does not do well. However, the disadvantage is that the margins are at the mercy of the OEMs who will use their bargaining strength to slash it to the minimum. The other danger is that of cheaper imports from China, Taiwan etc.

Having said that, both companies are doing well and are expected to do well in the future. Both have strong return ratios, competent management and huge growth prospects. The big dilemma is in choosing between the two