Automobile stocks gain attention - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Automobile stocks gain attention

Feb 16, 2001

The automobile sector continues to face declining volumes in the current financial year. This is now even spilling over to the motorcycle segment, which had reported robust growth rates earlier on. For the period April-December 2000, all segments of the industry have seen a pressure on volumes.The sales tax rationalisation, drought conditions and slower overall economic growth have resulted in this decline. The slowdown in agricultural production too has had an impact on the demand for tractors and utility vehicles, as rural demand is not picking up. On the other hand, the motorcycle segment, which depends on the rural economy, too has continued to report robust growth rates due to the fact that it ate into the market share of scooters. The impact of the rural slowdown has finally started to hit the motorcycle segment. In December 2000 the volume growth of only 10% for motorcycles is a pointer towards this.

Volumes April - Dec FY01April - Dec FY00change
M & HCVs 57,593 76,167 -24%
LCVs 44,000 41,081 7%
UVs 87,194 83,047 5%
Cars 417,721 459,264 -9%
Scooters 686,622 934,730 -27%
Motorcycles 1,577,382 1,247,862 26%
Mopeds 532,018 526,541 1%
Three Wheelers 142,438 150,381 -5%
Tractors 184,673 202,979 -9%

On the costs side too, automobile companies have been hit by rising costs on account of marketing and advertising as well as higher compliance costs. This has resulted in a decline in operating margins for most of the automobile sector.

Despite the above and the fact that there are no signs of improvement in the automobile sector, the sector continues to attract buying interest on the bourses. The reasons for this are the expected automobile policy in next month or so, which is likely to protect the industry in a phased manner so as to prevent higher competition in the various segments of the industry. The reason being over capacity in all segments currently due to lower demand. The expected hike in rail freight rates and increased spends on infrastructure too is expected to give a boost to commercial vehicle demand in the coming budget. For passenger cars the reduction in excise duty seems to be the added attraction.

There are a couple of stocks in their segments which despite the slowdown look attractive due to their inherent strengths. In the tractor industry, Punjab Tractors has tried to maintain its margins in the 3QFY01 despite lower tractor volumes. It has achieved this through fighting back its lost market share, costs curtailment and superior product quality. As compared to its peers it continues to look attractive due to its higher operating margins and higher return on capital employed, hence it commands premium valuations and deservedly so.

Operating margins (%)3QFY003QFY01
Ashok Leyland8.19.8
Bajaj Auto14.96.5
Hero Honda13.013.8
TVS Suzuki10.57.8
Mahindra & Mahindra12.38.1
Punjab Tractors20.420.5

In the two-wheeler market, Hero Honda too is trading at a premium to its peers due to increase in market share through higher volume growth and higher margins. However, here the concern lies in Honda's 100% subsidiary, which has already started operations for manufacturing scooters and could start manufacturing motorcycles after a few years. Besides the higher competition expected in this segment over the next two years with the aggressive entry of Bajaj Auto, LML and Kinetic does also add to the concerns of the company.

In the commercial vehicles segment, Ashok Leyland's 3QFY01 performance too is creditable. Despite lower volumes the company's operating margins have improved due to cost controls and sale of higher margin defence and bus sales. Its interest costs too fell due to better working capital management by the company. The company has performed better than Telco due to its strong presence in the bus segment, which is more dependant on changes in pollution norms than the slowdown in the economy.

Tata Engineering (Telco), too has been attracting buying interest in the last couple of trading sessions, this is despite the company's mounting losses in the current financial year. The trigger to this is the likely hike of rail freight rates in the budget, which will give a boost to commercial vehicle demand. Further higher expected expenditure on infrastructure for building of roadways too has given a breather. Its car sales are likely to get a boost as the sector is expecting a cut in excise duty for passenger cars from 40% to 32%.

Equitymaster requests your view! Post a comment on "Automobile stocks gain attention ". Click here!


More Views on News

HERO MOTOCORP 2020-21 Annual Report Analysis (Annual Result Update)

Oct 19, 2021 | Updated on Oct 19, 2021

Here's an analysis of the annual report of HERO MOTOCORP for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of HERO MOTOCORP. Also includes updates on the valuation of HERO MOTOCORP.

Hero MotoCorp Reports Substantial Rise in Net Profit. Is it Worth a Look? (Views On News)

Aug 13, 2021

The company improved its market share in the quarter by more than 2%. Can it achieve more?

Hero MotoCorp Q4 Net Profit Jumps Over 40% On Strong Operating Performance (Views On News)

May 7, 2021

The company's EBITDA jumped 78.8% YoY on account of cost saving initiatives to offset higher commodity prices and input costs.

Forget Tesla. Here Are 3 Indian Companies Betting Big on EVs (Views On News)

Jul 9, 2021

Three stocks to watch out as India's EV revolution gets underway.

Massive Surge in the Shares of Tata Motors Today. Key Factors Favouring the Rally (Views On News)

Oct 13, 2021

Tata Motors zooms 23% after report of TPG investing Rs 75 bn in EV arm.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

How to Hit Rs 100 Crore Wealth in Your Lifetime (Equitymaster Wealth)

Nov 15, 2021

This is how you can achieve the ambitious goal of a net worth of Rs 100 crore.

Don't Sell these Stocks if the Market Falls (Profit Hunter)

Nov 17, 2021

These are the 3 types of stocks that you should not sell in a market crash.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Nov 26, 2021 (Close)


  • Track your investment in HERO MOTOCORP with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks