Falling rubber and oil prices make JK Tyre a smooth ride: G Chokkalingam

In a chat with ET Now, G Chokkalingam, Founder, Equinomics Research & Advisory Pvt Ltd, explains why the going will be smooth for JK Tyre and Sutlej Textiles. Excerpts:

ET Now: The fundamental rationale behind picking JK Tyre is very well-known but does it make for a good buy at the current levels?

G Chokkalingam: Yes, certainly. On the same channel, we covered the stock for last two years successfully. In fact at around 400% gain, we closed our call. The stock is now down about 33% from a three months' high or lifetime high whereas the fundamentals have not changed much. The natural rubber prices are still down by about 26% in the last one year and oil prices are also down by about 50% from last year's peak. Both are beneficial to tyre firms in general, and particularly to JK Tyre. If you assume around 8 to 9 PE, there is a good upside to the stock.



ET Now: Your second pick Sutlej Textiles is a fairly interesting one. Take us through what the company does and why you are bullish on this for the long term?

G Chokkalingam: Sutlej Textiles may not be suitable for the short-term investor. It is purely for longer play. It is part of the BK Birla Group. It is into textiles, mainly synthetic and cotton textiles. The rational is that it is one of the best companies in the textile space. Since incorporation, it has been paying the dividend, which is very rare in Indian corporate history. It is available at less than 4 PE on one-year forward earnings. While cotton prices are low, even the synthetic paper price are going down because of the oil price crash.
Despite being a textile company, its net worth is around 32% for FY14 and finally the textile prospect is improving for India because China is slowly getting phased out. In the last five years, when rupee depreciated by about 30%, Chinese currency has appreciated by around 6% to 7%. The labour costs are rising faster in China. So all these are positives for the company and I firmly believe in next one to three years, the textile sector would emerge as a major theme in the Indian stock market.