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  • May 4, 2023 - Rekha Jhunjhunwala Trims Stake in this Auto Ancillary Penny Stock

Rekha Jhunjhunwala Trims Stake in this Auto Ancillary Penny Stock

May 4, 2023

Rekha Jhunjhunwala Trims Stake in this Auto Ancillary Penny Stock

Buying and selling stocks in the share market is such a simple activity that almost anyone can do it. But not every individual possesses the necessary expertise to generate positive returns.

It not only requires oodles of patience and discipline but also a great deal of research and a sound understanding of the market.

Added to this is the fact that stock market volatility in the past couple of months has left investors in confusion - where to invest, what stocks to hold and which winners to sell in such a scenario.

As a result, many investors look up to investment gurus who have achieved great success in their investing journey.

These investors have their toes dipped in the market and know the companies they invest in inside-out.

In today's article, we'll look at an auto ancillary stock which Rakesh Jhunjhunwala and Associates have recently trimmed their stakes in.

A word about Rakesh Jhunjhunwala

Rakesh Jhunjhunwala was an Indian billionaire stock trader and investor.

He used to manage his portfolio as a partner in his asset management firm, Rare Enterprises. He invested in both his own and his wife's name, Rekha Jhunjhunwala. He held the designation of Chartered Accountant.

Rakesh Jhunjhunwala was known as "India's Warren Buffett." According to Forbes, Jhunjhunwala was the 36th richest man in the country. He was worth Rs 460 bn when he passed away on 14 August 2022.

He was a director on the boards of several companies, including Viceroy Hotels, Concord Biotech, Provogue India, and Geojit Financial Services.

Which auto ancillary stock did Rakesh Jhunjhunwala & Associates sell and why?

According to data available on the exchanges, Rekha Jhunjhunwala, wife of late Rakesh Jhunjhunwala via Rakesh Jhunjhunwala and Associates, trimmed a 0.35% stake in Autoline industries during the March 2023 quarter.

According to the latest shareholding pattern of Autoline Industries, Rakesh Jhunjhunwala and Associates now holds a 3.96% stake in the company or 1.5 million(m) shares of the total equity, against 4.31% stake in December 2022 quarter.

Jhunjhunwala had initially bought a 9.46% stake in the company in December 2015. However, since 2016, he has constantly reduced his exposure to the stock.

The recent stake decrease marks the third consecutive quarter where Rakesh Jhunjhunwala & Associates have trimmed their stake in Autoline Industries.

Is something brewing at the company internally?

While we don't know the exact reason why they trimmed their stake in Autoline Industries, there are some reasons we can guess...

#1 Input cost pressure

Ongoing supply chain problems across the entire industry coupled with high raw material costs, have caused disruptions in recent years.

The auto and auto ancillary industry were hit hard by supply chain disruptions due to Russia Ukraine war.

Further, the rise in input costs of EV components due to a tenfold increase in Lithium metal prices since 2021 and a 75% increase in the cost of Nickel since 2020, has further impacted the margins.

This increasing cost weighing on the margins and it can be one of the reasons towards the bearish stance.

However, there are some signs of stabilization across multiple commodity groups in the industry's supply chain.

#2 Weak financial performance

The financial performance of Autoline Industries in recent quarters was adversely affected due to an increase in these input costs.

Following revenue of Rs 1.8 billion (bn) reported in the March 2022 quarter, the company's financial performance has been on a downward trend.

The company's revenue and net profit started to decline for the next three quarters.

Look at the table below.

Quarterly Results of Autoline Industries (March 2022 - December 2022)

Particulars 22-Mar 22-Jun 22-Sep 22-Dec
Total revenues (Rs in bn) 1.9 1.8 1.7 1.5
Operating profit (Rs in m) 207.0 122.0 202.0 130.0
Operating profit margin (%) 11.0 6.8 12.1 8.5
Net Profit (Rs in m) 93.0 17.0 103.0 45.0
Net profit margin (%) 4.9 1.0 6.1 2.9
Source: Equitymaster

For the December 2022 quarter, the company reported an 8% YoY decline in revenue to Rs 1.5 bn due to a combination of sales realization proportionate to material cost reduction and a decline in Light commercial vehicle (LCV) sales by OEMs.

While the net profit of the firm jumped 136% from Rs 19 m to Rs 45 m in the December 2023 quarter. This was due to a decrease in finance costs.

The operating profit for the quarter declined 11% YoY to Rs 1 bn against Rs 1.2 bn a year ago.

The operating margin was also impacted due to a decline in LCV revenue, liquidation of higher-cost raw materials, inventory and wage rate hikes to attract skilled manpower.

It remains to be seen how the company performs in the coming quarters as input prices start to moderate.

However, Rakesh Jhunjhunwala and Associates still hold 3.9% stake in the company. It could be justified as the government has taken so many initiatives and provided with incentives to boost domestic manufacturing of Advanced Automotive Technology (AAT) products.

For other stock picks of Rakesh Jhunjhunwala, check out Rakesh Jhunjhunwala Portfolio and his top 5 stocks.

How the stock of Autoline Industries has performed recently

Over the last one month, Autoline Industries share price is down by 1%. In 2023 so far, the stock is trading lower by 6%.

Autoline Industries has a 52-week high quote of Rs 125.7 touched on 10 October 2023 while the stock touched its 52-week low of Rs 50.3 on 20 June last year.

About Autoline Industries

Autoline Industries is an Indian company that operates in the automotive industry. The company primarily focuses on manufacturing and supplying precision machined and assembled components for various automotive applications.

Autoline Industries specializes in producing engine parts, transmission parts, and other critical components that are used in the production of vehicles.

The company serves a wide range of customers, including leading original equipment manufacturers (OEMs) in India and other countries.

You can also compare with its peers:

Autoline Industries vs Bosch

Autoline Industries vs Bharat Gears

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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Which are the best value investing stocks in India right now?

As per Equitymaster's Stock Screener, here is a list of the best value investing stocks in India right now...

These companies have been ranked as per their PE (Price to Earnings) ratio and PB (Price to Book Value) ratio. The lower the ratios, the more undervalued the stock is.

They also have low debt and high return on equity.

Note that, there are various other parameters you should take into account before investing in any company such as promoter holding etc. Sustained research must not be compromised despite the positive odds.

Can value investing make you rich?

Yes. However, note that value investing is not a get-rich-quick scheme, it's a buy-and-hold strategy.

Once you manage to find a fundamentally strong company that is priced lower than its actual value, you must buy and hold for a long term.

This will help you ride out the volatility in stock prices and avoid the pitfalls that come with trying to time the market.

How does Warren Buffet value stocks?

Warren Buffett evaluates stocks based on his value investing philosophy.

Buffett looks for companies that provide a good return on equity over many years, particularly when compared to rival companies in the same industry. He also reviews a company's profit margins to ensure they are healthy and growing.

Besides this, he focuses on companies that provide a unique product or service that gives them a competitive advantage. He also focuses on companies that are undervalued, ie. have a margin of safety.

Here's a list of Indian stocks that could qualify per Warren Buffett's criteria...

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