Is Now A Good Time to Buy Stocks in Auto Ancillaries?

By SiliconIndia   |   Monday, June 30, 2014
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BANGALORE: Auto Ancillaries stocks are on a tremendous growth since last month. The commercial vehicle sale has seen an adequate growth of 4-6 percent in 2014.The lower labour costs is an absolute advantage to Indian Auto Ancillary Companies.

Investors are betting on them deliberately. The results shown in this sector is spectacularly well, companies like Amtek Auto has seen a rise from Rs.178 to Rs.240, Bharat Forge is on its excellent move from Rs.468 to Rs.592 and Exide Battery with zero debit has seen a considerable growth from Rs.136 to Rs.143.

The Auto Ancillaries companies are catering to three markets: original equipment manufacturers, the replacement market and exports. The reason why these companies are seeing such a growth is the replacement demand setting and a continuous demand for new vehicles.

“The replacement cycle for a majority of the components is around three to four years. Healthy sales recorded by the automobile industry during 2010-12 and stretched replacement will kick in replacement demand in 2015-16,” says Mitul Shah, a senior research analyst (auto and auto ancillary).

According to ICRA, professional investment information and credit rating agency, a budgetary allocation towards JNNURM will see an addition of 10,000 buses, a beneficiary step for the bus segment.

Madhumita Ghosh, a Mumbai based analyst recommends to Bharat Forge and Motherson Sumi, she proclaims “With a recovery expected in CV volumes, the margins of ancillary companies will improve.”

While focusing on the replacement demand Exide Battery, which is a zero debt company and incurred a profit of Rs.132 crore in March 2014 far from the profit of Rs.77.52 crores, could be a leap forward in your beneficiary plans.

Amtek Auto is also a name that has gained popularity in the eyes of analysts. “All the big manufacturers including the foreign players are catered to by Amtek. Many international players plan to use India as an export hub which will benefit it,” said Alok Ranjan, portfolio manager, Way2Wealth. The company’s net profit has increased from Rs.78 crores in December 2013 to Rs.85 crore in March 2014.

Analysts expect that, 36 percent of India’s exports of auto components are benefiting from the better economic prospects in Europe. Growth in infrastructure may increase if the focus will govern infrastructure issues too.

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