INSUBCONTINENT EXCLUSIVE:
Driving luxury cars has aspirational value for some, but investors globally are increasingly finding it difficult to ascribe premium
valuation to the stocks of high-end car makers
And in some cases, pure commodity companies such as steel makers are perceived to be more valuable.
The average 2018 price-earnings (P/E)
multiple of the top 10 car companies by market capitalisation was 6.9 compared with the average P/E of 9.6 for the top 10 steel companies,
The total market capitalisation of the top 10 car makers was $687 billion, three-times that of the top 10 steel companies.
The stocks of top
car makers have lost 10-32 per cent since the beginning of 2018 wiping out nearly $141 billion of the market value
The sharp fall has pushed the price-book (P/B) multiple of the leading car makers such as Toyota, BMW, Renault, Volkswagen, Honda and Tata
traded at nearly 30 per cent premium to the Bloomberg World Steel index since 2010
The auto benchmark is now at 6.5 per cent discount to the steel index.
Hazy earnings outlook due to tepid global demand, rising cost to meet
strict emission norms, tariff war and the advent of electric vehicles are some of the factors that have impacted the valuation of car makers
In June, Daimler, which owns Mercedes brand, became the first prominent company to cut profit outlook followed by BMW last month
decision to move out of the European Union (Brexit)
If earnings do not stabilise for global car companies, future dividend payout will be in doubt
Dividend is a crucial element that attracts large institutional investors to the auto sector.
