Auto stocks are on a roll since the beginning of the ongoing financial year on hopes of rising demand from rural consumers buoyed by robust monsoon and salary hike of government employees after the 7th Pay Commission. Markets experts believe auto sector will remain in limelight in the last quarter of 2016 also due to upcoming festive and wedding season. Since April 1, 2016, shares of auto majors such as Maruti Suzuki soared nearly 50 per cent to Rs 5566.50 till September 26, 2016, followed by Tata Motors (up 41.10 per cent), Eicher Motors (up 28.18 per cent) and Bajaj Auto (up 20 per cent).
In August 2016, two-wheeler sales increased by 26 per cent year-on-year helped by a weak base and buildup of channel inventory in anticipation of a good season ahead. Sales of motorcycle, scooter and moped grew by 22 per cent, 33 per cent and 37 per cent year-on-year with new launches contributing 7 per cent of overall sales in motorcycles and scooters. In passenger vehicles (PV), the UV segment continues to drive sales, growing 47 per cent year-on-year helped by new launches and model refreshes.
Auto ancillary and tyre companies too joined the rally with MRF shares soared over 22 per cent during April 1- September 26. Others like Motherson Sumi, Amara Raja Batteries and Bharat Forge also gained 20.50 per cent, 14.63 per cent and 8.48 per cent, respectively.
Rating agency India Ratings and Research is positive on the growth of tyre companies and expects the overall tyre volumes (in numbers) to grow around 7 per cent in the FY17 due to a steady demand from original equipment manufacturers (OEMs) and an improvement in replacement demand. However, revenue growth for sector companies might be lower than the overall growth in volume demand due to an increase in imports as well as pricing pressure. Brokerage firm Prabhudas Lilladher has ‘Buy’ rating on Ceat stocks with a target price of Rs 1,310. On Monday, shares of the tyre maker were trading at Rs 1,186.
According to Sharekhan, the domestic motorcycle industry has gained traction, posting a double-digit volume growth in the past two months. During April-August 2016, the motorcycle industry has posted 12 per cent YoY growth as against a flat growth clocked in FY2016. Improved rural sentiments on the back of a normal southwest monsoon and hike in government employees’ pay have propelled the motorcycle sales. In the upcoming festive season, the brokerage house expects the demand momentum to remain strong. Sharekhan has maintained ‘Hold’ rating on Bajaj Auto stocks with a target price of Rs 3,150.
Hero MotoCorp and Eicher Motors are among the top picks of brokerage firm Religare Institutional Research.
The first quarter of the financial year ended June 30, 2016 not remained much in favour of auto companies in terms of growth in top line figures. On an average, components in the BSE Auto index reported 23 per cent year-on-year fall in net profit, while net sales of auto companies increased by 10 per cent year-on-year.