Wheels of the auto industry kept rolling on Dalal Street in 2017, as more than 25 stocks from the sector have more than doubled investor wealth since December 31, 2016.
They included some of the auto component majors.
Despite many headwinds starting with the hangover of note ban, a shift from BS III to BS IV standards in the first quarter and GST rollout in the second quarter, the BSE Auto index (up 31 per cent) managed to beat benchmark Sensex (up 27 per cent) this calendar.
Component maker Frontier Springs emerged the top gainers from the pack, with a 656 per cent rally from Rs 31 on December 30 last year to Rs 234.40 on December 22, this year.
Among other auto component majors, Bharat Seats, Minda Industries, PPAP Automotive, Talbros Engineering, Jay Ushin and Lumax Industries gained 353 per cent, 336 per cent, 296 per cent, 231 per cent, 199 per cent and 186 per cent.
Two-wheeler major TVS Motor Company zoomed 115 per cent, while India's largest tractor manufacturer Escorts rose 152 per cent in 2017.
Shares of automotive Axles, GNA Axles, Jamna Auto, LG Balakrishnan and Minda Corp also soared over 100 per cent for the calendar.
Sahil Kapoor, Chief Market Strategist, Edelweiss Investment Research, sees Jamna Auto and GNA Axles as excellent stock picks from the smallcap space for 2018.
Anand Rathi Financial Services is positive on Jamna Auto with a target price of Rs 95. "We expect the company's revenues to grow at 13 per cent CAGR over the next three years owing to a steep uptrend in the MHCV OEM segment. The company is also likely to draw the benefits of operating leverage," the brokerage said.
Neeraj Deewan, Director, Quantum Securities, said those trying to pick quality stocks from the auto and auto components space should look at names catering to the commercial vehicles space. The economy is picking up and given the kind of order book that people have across infrastructure segments, commercial vehicles is one space where investors should look for ideas when it comes to stock picking from auto and auto ancillary space, he told ETNow.
Shares of commercial vehicles majors Ashok Leyland, VST Tiller and M&M advanced between 25 per cent and 50 per cent in 2017.
Shares of country's largest carmaker Maruti Suzuki recently hit the five-digit mark of Rs 10,000 for the first time ever. The stock is up 82 per cent for the year to trade at Rs 9,700 on December 22 from Rs 5,323 on December 30.
Global brokerage Morgan Stanley recently raised its target price for Maruti to Rs 10,563 from Rs 9,102 earlier. It projects the stock to hit Rs 14,400 in a bull case scenario.
Among other stocks trading in five digits, Bosch dipped 5 per cent, while Eicher Motors advanced 39 per cent during the year.
With a market share of over 50 per cent in the domestic passenger vehicles market, Maruti now boasts of Alto 800, Alto K10, A-star, Estilo, WagonR, Ritz, Swift, Swift DZire, SX4, Eeco, Grand Vitara and Ertiga among its offerings.
The rise in fortunes of Maruti is a classic example of the consumption boom in India over the years, says Gautam Duggad, Head of Research, Motilal Oswal Securities.
The company has been able to corner a healthy market share over the years. There is not much competition in sight. Its product mix, plant capacity, sales and marketing networks and on-ground presence are unparalleled. All this has augured well for the company, he said.
Jinesh Gopani, Senior Fund Manager, Axis Mutual Fund, says auto has a direct correlation with rising GDP growth. Do not forget, there have not been many IPOs or fundraising in the auto sector.
"If you have to buy auto, then you have to look at 5-10 stories that are really good and are still growing at a very handsome pace with strong market shares and strong leadership position," he said.
Auto sales volumes surprised positively in November, with most automakers reporting double-digit growth, defying the general trend of the post-festive season slowdown.
The November numbers reflected improved market dynamics, with the GST effect settling down and rural demand picking up. However, exports growth was mixed due to weakness in South Asian markets. To some extent, the strength in numbers was ascribed to a low base in the year-ago period in the aftermath of demonetisation.
"Strong volume growth is likely to continue in the coming months due to a low base of year-ago numbers," Systematix Shares & Stocks said in a research report.
To cope with rising raw material prices, select auto players are planning to price hikes in January 2018.
Two-wheeler market leader Hero MotoCorp will increase prices of its motorcycles across models by about Rs 400 on an average from January.
M&M has also announced plans to increase prices of its passenger and commercial vehicles by up to 3 per cent.
Among the laggards of 2017, Tata Motors, SML Isuzu, FIEM Industries, Amtek Auto, LML, Castex and JMT Auto dipped between 10 per cent and 75 per cent till December 22.
Brokerage Systematix Shares & Stocks has a 'buy' rating on Tata Motors with a target price of Rs 530. The scrip was trading at Rs 422 on December 22.
Kotak Securities has retained a 'buy' rating on FIEM Industries with a revised price target of Rs 1,203 (earlier 1,254), valuing the stock at a PE of 18 times on FY19E earnings basis.
Auto companies are delivering sustained earnings growth. Private financials are also delivering consistent growth. Both these sectors augur well for reasonable investment performance over the next 12-18 months, says Rakesh Tarway, Head of Research, Reliance Securities.
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