Sunday, January 23, 2011

Ashok Leyland - 20% to 30% correction in next 1 to 3 months

Short Ashok Leyland for 20% -30% downside target within next 1 to 3 months.  
The Inflation monster returns to support the bears.
  • Cmp 60.
  • Target 1 = 50 with next 1 month, target 2 = 35-40 over next 2/3 months
  • Stop loss - 60 or trailing 1-2% higher or individual absolute loss limits ( Rs 20k, 50k ..)
  • This is how I would play this with real money- 
    • Totally dedicated and active monitoring of the trade as long as short position is open
    • Kepp make big intra day shorts on any rallies and square off intraday to keep booking profits and keep increasing trading capital
    • If global markets and Sensex cues are negative that gives you confidence for a negative opening tomorrow and the short target still not met, ONLY then take some overnight short positions ( comfortable enough for a night`s sleep ) and exit tomorrow morning on profit.
    • Follow stop loss levels strictly. But dont keep too tight stop losses also as one can see 1-2% intraday rallies in sharp falls and you could get stopped out easily.
  • Conviction short hai so recc. to go short with amount of at least 10% of total networth. W Buffet funda ;-) ( yes W. Buffet funda is only for Long only and this is short only but what the heck)
  • Already down 25% from lifetime high of 80 made on diwali mahurat - 5th Nov but still a juicy shorting candidate.
Reasons for short thesis -
  • Inflation eating away margins - Q3 Dec`10 qtr  Results - OPM% margin drops by 400 bps to 7.5% vs just 3 months ago Q2 Sep`10 !! .PAT down 60%. On Q3 annualized PAT basis, ASHLEY is trading at PE of 40x vs previous year FY10 PE of 18x. Results here. Again topline growth is useless here. Sales grew 22% YoY.  For the past trailing five quarters results and margins,see here.Any idea of what were the analyst estimates for the quarter ?
  • Past performance during similar bad results - In 2008 (FY09) when its PAT fell by 60% ( OPM fell to 8.5%) , stock by 75% from peak of 55 to low of 13. Chart here
  • Over-owned,overloved and over-crowed stock - Lots of free float of over 60%, ( promoter holding of 38%). top 5 shareholders holding total of 15% include - Fidelity, Matthews India Fund and LIC.  Summary here
  • Street consensus is still bullish. See brokerages view on Ashok Leyland here and here . I could not find a single SELL report on Ashok Leyland. Such bullish consensus view on Ashok Leyland would bring great joy ( and hopefully bring great money) to the bears.
  • Technical take -  very weak. already down 25% since hitting lifetime high of 80. Had rallied 5.3x or 430% from Mar`09 low of 15. Long term chart here.Stock already broke below its 200 DMA of 66 on 15 Dec`10 and hasnt able to break above it. Last 3 months chart here
  • Disclosure - No positions as of writing this now. Might take up positions in the next few days.

1 comment:

Anonymous said...

Mutual Funds holding Ashok Leyland as on Dec`10 - 75 Mn shares
Among large public shareholders holding more than 1% of Ashok Leyland, the only sellers in shareholding since last 3 months has been LIC.