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Thinking to buy auto stocks? Give a look to these shares

In  tyre  companies, OEM growth for M&H CV  tyres  was negative. Our channel check suggests that replacement demand for truck  tyres  (radial) has been very strong. Most  tyre  OEs are running full capacity  utilisation  on their radial  tyre  capacity. At the same time, growth in the farm sub-segment (tractors) has been phenomenal. Thus, we expect capacity  utilisation  in “bias”  tyres  would be much higher. 

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Thinking to buy auto stocks? Give a look to these shares
IndiaNivesh suggests investors to pick Escorts, JK Tyres and Atul Auto stock. Image source: Reuters

In Q3FY19, tractors, two-wheelers and three wheelers have reported a strong growth YoY. LCVs continue their steady growth. Volumes in the M&HCV segment declined YoY primarily due to the wait in the launch of newer higher gross weight axle models while passenger segment reported dismal performance. The lower raw material prices will assist margins. The tyre pack should report a revenue growth YoY along-with expansion in margins QoQ. According to IndiaNivesh Q3FY19 perview of the auto sector, in two-wheelers segment, TVS Motors outperformed its peers. In three-wheelers, Atul Auto reported one of its strongest quarterly growth. Ashok Leyland’s earnings would decline due to a 17% YoY decline in its M&HCV volumes. Tractor volumes grew steadily. We expect Escorts and Swaraj Engines to report strong revenue, EBITDA and PAT growth. However, tillers have been hit. VST Tillers’ revenues and earnings we expect to have declined respectively 25% and 68% YoY. Companies like Escorts, JK Tyres, Atul Auto as top performers of the quarter. We can also expect Balkrishna Industries and Swaraj Engines to report a strong set of numbers for the current quarter.

In tyre companies, OEM growth for M&H CV tyres was negative. Our channel check suggests that replacement demand for truck tyres (radial) has been very strong. Most tyre OEs are running full capacity utilisation on their radial tyre capacity. At the same time, growth in the farm sub-segment (tractors) has been phenomenal. Thus, we expect capacity utilisation in “bias” tyres would be much higher. 

The LCV tyre segment continues to report strong off-take, but the passenger vehicle tyres have seen some slowdown. The two-wheeler and three-wheeler OEM sales have been strong during the quarter, so we expect these tyres to witness decent growth. Overall, we expect a revenue growth in the range of 14-18% for most players. The benign natural rubber prices and the sharp correction in crude derivatives will have a positive impact on the margins sequentially.

IndiaNivesh picks the following stocks as show-stoppers for next quarter citing, "Our top picks are Escorts, JK Tyres and Atul Auto. We are also positive on Balkrishna Industries and Swaraj Engines, expecting positive earnings growth from them."

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TAGS:
BSEMarkets
Written By: Asit Manohar
Updated: Mon, Jan 14, 2019
09:15 am
New Delhi, ZeeBiz WebDesk
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