• NOVEMBER 24, 2000

Automobile stocks continue to languish

The current financial year has not started on a very good note for the automobile sector. Automobile stocks on the whole have under performed the market as they faced declining volumes, lower margins and higher competition.

The implementation of the uniform sales tax has had an adverse impact on most automobile companies as the price of their vehicles rose as a result of the above. In states where the sales tax was 4% earlier, it has now gone upto a uniform level of 12% across the country.

Besides the drought conditions in the earlier part of the year, the slump in agricultural production have added to the slowdown. Normally, the second half of the year is much better than the first half for automobile companies. However, the slowdown in agricultural production is anticipated to leave its mark on the second half as well.

The recent oil price hike too has acted as a dampener. What is worrying even more is the fact that diesel consumption has fallen in the last couple of months and other sectors are facing a slowdown. Hence the demand for commercial vehicles continues to be weak with no signs of a pick up.

Auto stocks under perform the market
(in Rs) 23rd Nov 2000 6mths ago 1 year ago
Bajaj Auto 263 343 407
% change   -23.3% -35.4%
Telco 84 131 225
% change   -35.9% -62.6%
Mahindra & Mahindra 144 187 436
% change   -23.0% -67.0%
Punjab Tractors 180 208 361
% change   -13.5% -50.1%
Escorts 83 113 163
% change   -26.5% -49.1%
Hero Honda 832 795 1120
% change   4.7% -25.7%
BSE sensex 3,853 3,944 4,636
% change   -2.3% -16.9%

Inspite of the above negative factors, certain automobile stocks do look attractive on a long term basis. Telco, India's largest commercial vehicle manufacturer is very well positioned to benefit from the turnaround in the sector. In the short term too, this stock will benefit from its tie-up with an international car major.

Punjab Tractors, whose stock price is currently down, looks attractive due to its strong brand, conservative financing policies and high margins. Besides, Hero Honda continues to be a market leader in the growing motorcycle industry. Its ability to come out with new fuel efficient products and strong EPS growth of over 30% over the next few years, makes it attractive at current levels.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407