The Hindu Business Line : Auto stocks accelerate after better-than-expected Q2 results

Kolkata, Nov. 5 Auto stocks are moving up after better-than-expected second quarter results. According to analysts, the market is cheering the growth in sales, new launches and improvement in margins. Analysts are also generally optimistic about the volume growth going forward.

BSE Auto index gained 2 per cent and showed an improvement 4.38 per cent in the past week. The index, which included tyre and auto component stocks also, reflected an overall positive trend. Two-wheeler stocks such as Bajaj Auto (1.4 per cent) and Hero Honda (2.31 per cent) also closed up.

On Thursday Ashok Leyland closed up 4.12 per cent after hitting its 52-week high, M&M gained 3.56 per cent, Maruti Suzuki rose 1.82 per cent and Tata Motors moved up 1.09 per cent.

According to Mr Jinesh Gandhi of Motilal Oswal, the second quarter FY-10 results were better than the brokerage’s estimates, with highest ever margins. Volumes in grew 16.1 per cent for the industry, with recovery in commercial vehicles and strong growth in two-wheeler and personal vehicles.

Further boost

Numbers were further boosted by price hikes, full realisation of lower commodity prices and high operating leverage driving EBITDA margins to peak margins. In a note, the brokerage said the EBITDA margins expanded by 520 basis points Y-o-Y and 130 bp Q-o-Q to 15.5 per cent. It felt that increase in raw material cost — owing to hardening in commodity prices, and negative operating leverage — might impact margins in the second half of FY10. Though the monsoon blues have not hit the demand so far; along with hardening interest rate, it may affect demand in the second half of this fiscal.

According to Angel Broking auto sales spurted in the past quarter owing to festive season buying. The commercial vehicle segment showed growth because of improving industrial outlook. “Amid labour unrest in the Haryana Auto ancillary belt, the OEMs, particularly Hero Honda, managed to escape unscathed on the production front,” Angel noted.

Anand Rathi Finnacial Services said that for Tata Motors the key growth drivers were the CV segment (both LCVs and M&H CVs) and the Nano dispatches. M&M’s volume growth, however, came on the low base of the previous year.