INSUBCONTINENT EXCLUSIVE:
In times of market high, the auto sector is presenting the ultimate puzzle: projections are superb, but stocks are not going into fast
lane.
Indian auto sector was on a roll for the past two years, but is going through a rough patch since May, as reflected by the relative
underperformance of BSE Auto index in comparison with Sensex
The BSE Auto Index is up just 0.50 per cent since mid-May, whereas the 30-share Sensex has risen 10 per cent
Both the indices had rallied 50 per cent between February 24, 2016 and May 18, 2018.
Analysts say a likely demand pickup in the rural belt
and increase in government spending ahead of elections will boost the sector in the near term.
Subdued performance of Tata Motors (down 16
per cent), followed by Hero MotoCorp (down 10 per cent), Ashok Leyland (down 13 per cent) and Apollo Tyres (down 8.74 per cent) mainly
impacted the performance of the auto index
Overall, the industry remains on a strong footing, and July was another strong month when the industry recorded robust volume growth across
segments, barring the passenger vehicles segment
While demand remains relatively broadbased across markets, rural India appears to be doing particularly well, as reflected in robust growth
in the two-wheeler and tractor volumes
All major original equipment makers reported strong double-digit volume growth in July, except Maruti Suzuki.
Maruti continues to maintain
its forecast for double-digit sales growth in 2018-19 despite a marginal drop in July, banking on good monsoon and an uptick in the rural
witnessing a positive transformation led by higher government spending, greater farm financing, farm loan waiver, MSP hike and normal
scooters are seeing growing interest in rural areas
Bus demand was mixed in the recently-concluded school bus season (April-June) with wide regional variations
Small trucks are seeing good demand due to pickup in construction activities and implementation of the overloading ban though the recent
axle load hike had no impact.
IIFL prefers companies with focus on rural themes such as Swaraj Engines, SML Isuzu, Hero MotoCorp and VST
In the auto ancillary space, there is value in Motherson Sumi and Bharat Forge, says Sudip Bandyopadhyay, Founder, Inditrade Capital
In spite of a little bit of a slowdown in the overall European markets, Motherson has performed commendably and the kind of management
commentary we heard post earnings was very heartening
As for Bharat Forge, the performance has been good
Demand pickup in the US for heavy-duty trucks augurs well
Also, the domestic infrastructure business and domestic defence business are looking up
doubled investor money since February 2016
Maruti Suzuki, MRF, TVS Motor and Exide Industries have surged over 100 per cent in the same period.
Bandyopadhyay also likes Exide
Industries in the batteries segment
Companies in the BSE Auto index (ex Tata Motors) posted 13 per cent and 37 per cent YoY rise in net sales and net profit during June
Tata Motors registered a consolidated net loss of Rs 1,862.57 crore in Q1 of FY19 against a net profit of Rs 3,199.93 crore reported for the
same period in 2017-18.
There are expectations that margins of tyre companies would fall 1.5-2 per cent between the second and third
its report.
Brokerage Sharekhan said after a solid start in Q1FY2019, the auto sector is likely to maintain the trend of double-digit volume
demand for its recent launches and likely market share gains going ahead), MM (to benefit from strong demand in both the automotive and
tractor segments) and Escorts (one of the few stocks to play the rural upturn)
