The Hindu Business Line : Auto stocks begin to face the heat as fuel prices surge

Market is trying to price-in a possible slowdown in auto sector in the backdrop of soaring crude oil prices and manufacturers’ falling margins in view of cost pressures.

Even as the general sentiment is negative, some of the analysts, however, do not find the situation grim, for all the players. According to Mr Arun Kejriwal of KRIS, Indian consumers are a protected lot; they are only paying half of the actual price for petrol or diesel.

Mounting losses

“Even if the Government allows the oil marketing companies a token rise, it would be way below the international price. For whom the vehicle is a necessity or part of the life, demand for is largely inelastic.”

However, according to Mr V.K. Sharma, Head of the Research at Anagram Stock broking, issue is now of availability, not of price alone. “For the oil marketers, small price increase may not be enough to sustain mounting losses.” The market is expecting that the Government may forego additional import duty on oil imports, which has been caused by surging prices.

However, some analysts underlined that the input cost pressure is also a negative factor for the auto sector. According to Ms Shahina Mukadam, Head of Research at IDBI Securities, though Government’s recent move in restraining steel prices have somewhat been positive, the other costs, however, have been eating into the margins.

“Except for Hero Honda, the Q4 of 2007-08 results have not been exciting. Bajaj Auto, which has discontinued with the 100cc motorcycles, has caused it a chunk of the rural market. On the exports front also things do not seem to paint a bright picture for the Indian auto companies in the coming quarters,” she added.

Possible slowdown

According to Mr Kejriwal, escalation in manpower and power costs have also hit the automakers. Mr Sharma felt that only bus makers in the commercial vehicle segment such as Ashok Leyland and Tata Motors are likely to bypass a possible slowdown in demand. According to Angel Broking, the four-wheeler growth story has witnessed a halt since the last two quarters, while the two-wheelers have been showing some change in the trend during the period. Passenger cars also failed to impress. Analysts felt that first-time passenger car buyers may postpone intended purchases for a while on rising fuel cost and cost of borrowings.

Auto stocks have thrown a negative price trend on week-on-week basis. However, they are still in the green in the last one-month period.

Maruti Suzuki today declined by 1.34 per cent on Thursday and 2.25 per cent in the past one week. Ashok Leyland and Tata Motors dropped 4 per cent today, while Escorts eased by 4.65 per cent and M&M finished down 2.2 per cent. Among the two-wheeler stocks, while TVS lost 4.63 per cent, Hero Honda closed flat.

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