With the rising Sensex, the A group stocks are getting more and more expensive, investors should be shifting focus to good B group companies with strong fundamentals. A number of B group scrips offer great value but remain comparatively undervalued. These scrips rise once the bull rally in A group cools off.
The Smart Investor picks some quality B group scrips which are market leaders in their respective fields and enjoy a strong presence with good management. They either have a good brand positioning or a technological edge. A number of these companies have still to see the better part of the bull though some have risen. These companies have performed and delivered even during the toughest times and are leaders in their businesses.
Elgitread
Elgitread (earlier Elgi Tyre & Tread) is a South-based company engaged in the tyre retreading business selling both retreading units and retreading material. The company has a 50 per cent market share followed by MRF, Indage Rubber and Vamshi Rubber. The company has a network of 350 franchisees spread across the country. Seventy per cent of its sales come from these branches. To expand its presence further, Elgitread focused on international markets and exported 50 retreading units to east Africa, west Asia and east Asia. To further intensify presence in international markets, Elgitread has floated joint ventures or subsidiaries in Mauritius, Kenya, Sri Lanka and Tanzania.
In the domestic market, Elgitread sells its products (retreading materials) to its franchisees which contributes 70 per cent of its sales. It also sells to state road transport units which contribute nearly 20 per cent of sales and exports account for 7 per cent. In the domestic market, most of its sales come from selling retreading material to its local franchisees as retreading units are sold only once in a while. As far as its overseas ventures are concerned, it sells the entire requirement of retreading material, besides providing them technical and marketing support.
Elgitread is currently facing competition from MRF but considering the infrastructure that it has built up, it is in a dominant position. In the current rally with bright prospects of a recovery, the vehicles which were off the roads will now be back as demand would move up. Thus retreading would get a boost. Elgitread's performance during 1998-99 saw a setback in sales to Rs 126.2 crore against Rs 142.4 in 1997-98 mainly due to the sluggishness in automobile industry. However, after strict cost cutting, it posted a higher net profit of Rs 21.6 crore up 16.7 per cent. Subsequent to a 1:2 bonus issue in October 1998, the equity has risen to 4.28 crore. Buy at current levels of Rs 325.
