March 4, 2024

December quarter outcomes of two main OEMs – Bajaj Auto and TVS Motor Firm – beat expectations on the Road.

Expensive Reader, 

Auto shares have been among the many high performers these days. Within the final one yr, the Nifty Auto index zoomed 43 per cent, forward of the benchmark Nifty 50 that returned about 19 per cent. Auto authentic gear producers (OEMs) have been spewing out robust gross sales numbers month after month, underscoring sustained demand. Including to this are tailwinds from information round product launches and benign uncooked materials costs which have lifted revenue margins, after some painful quarters final yr.
December quarter outcomes of two main OEMs – Bajaj Auto Ltd and TVS Motor Firm Ltd- beat expectations on the Road. Double-digit income development in comparison with the year-ago interval and a few 100 basis-points (bps) working margin enlargement justified the narrative of sustained earnings development. However all this optimism appears to be baked into the respective inventory costs. Why the current valuations look elevated is highlighted in MC Professional’s Analysis staff evaluation right here and right here.

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Over the subsequent few days, extra auto OEMs comparable to Tata Motors, Hero MotoCorp, Eicher Motors are anticipated to declare their outcomes which can be prone to observe an identical trend- robust earnings development baked into valuations.

To make sure, Nifty auto index valuations have come off barely within the final couple of weeks on stories of demand moderation in some segments comparable to passenger autos and business autos. Tractors too seen to be going via the cyclical downturn. The excessive base will have an effect on development for these segments within the subsequent couple of years.

A latest report by BNP Paribas on the Indian automotive panorama highlights explanation why it expects demand development to average to single-digits throughout the sector over FY2025-26. Financial restoration has not been broad based mostly, which raises issues on sustaining the robust automotive demand development. It cites particular causes comparable to issues of Ok-shaped restoration looming nonetheless together with fears of unemployment together with lacking actual rural wage development. In the meantime, information on exports just isn’t comforting sufficient to offset slowing home demand.

In different phrases, it might be prudent for traders to average earnings development expectations from the auto pack. In fact, the Interim Funds forward of basic elections could sprinkle some incentives/subsidies, notably for rural areas, which will make constructive headlines and drive up total investor sentiment.

Auto corporations’ methods to spice up demand via new launches and refreshes within the absence of robust underlying success is prone to meet with restricted success. Additionally, the noise round electrical autos together with the anticipated Ola Electrical IPO could assist preserve investor curiosity in auto shares elevated.

Investing insights from our analysis staff

Story continues under Commercial

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Vatsala Kamat
Moneycontrol Professional