Despite Decline In Sales, Here’s Why You May Want To Bet On Auto Stocks Now

The auto sector continues to remain under pressure as February sales data showed another month of decline. Tata Motors reported a 32 percent fall in total sales with a 34 percent fall in the domestic front. Maruti Suzuki reported a 1.1 percent decline in sales for the month of February while TVS Motors sales fell 15 percent.

Bajaj Auto's sales in India may have fallen 24 percent but its exports rose for the third straight month, helping lower the total sales decline to 10 percent for February.

Sales of Mahindra & Mahindra saw a significant drop of 42 percent while Ashok Leyland reported a year-on-year fall of 37 percent in sales volume to 11,475 units.

Eicher Motors' total commercial vehicle sales slipped 29.2 percent to 4,439 units.

Good time to pick stocks

Experts feel that the automobile sector may be heading towards recovery. In the last few months, apart from the economic slowdown that generally hurts demand for big budget purchases like vehicles, the change in emission norms have also hurt the sector. As the country readies itself for the BS-VI norms that will kick-in on 1 April 2020, vehicle manufacturers also had to spend on financing the transition, affecting their profits.

Analysts believe that post the completion of the transition, automakers' shares will pick up pace. The Indian economy is also showing subtle signs of recovery, which could help push sales volumes.

Additionally, most stocks are currently priced lower amid stock market correction due to coronavirus scare. It would be a great opportunity to buy equity at dips for long-term investments.

Brokerage Bets

Brokerage firm Motilal Oswal Financial Services sees 77 percent upside in Tata Motors (target price: Rs 228), 27 percent upside in Maruti Suzuki (target price Rs 8,000), 46 percent upside in Mahindra & Mahindra (target price: Rs 666) and 53 percent upside on Eicher Motors (target price: Rs 25,350).

Auto Index picks up pace

Most auto shares were trading higher on Monday despite reporting fall in sales numbers the previous day. Nifty Auto index rose close to 2 percent in trade to touch an intraday high of 7,047.60.

Challenges

While reporting their monthly sales numbers, some companies did inform of challenges in BS-VI transition due to disruption in parts supply from China amid coronavirus outbreak.

Mahindra & Mahindra's Chief of Sales and Marketing, Automotive Division, Veejay Ram Nakra, said, "The ramp-down of BS-IV vehicle production has been in line with our plan for February. However, because of the unforeseeable challenges on the parts-supply from China, our BS-VI ramp-up has been affected."

"Going into March, we anticipate the challenge on parts-supply to continue for another few weeks, before we get back to normalcy," Nakra added.

Mayank Pareek, President, Passenger Vehicles Business Unit, Tata Motors Ltd informed of the Covid-19 outbreak in China and a recent fire incident at one of its strategic vendors affecting vehicle production and wholesale volumes.

Similarly, MG Motor India that reported lower retail sales of 1,376 units in February said that it was affected by component supply constraints from China and other locations. However, its MG ZS EV has received a "stupendous" response in its debut month, with over 150 units delivered to our customers already.

Disclaimer

The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.

About the author

Olga Robert has been covering equity markets and personal finance for over two years.