Auto stocks: Riding low on the slow lane

In the last one year, auto and auto component stocks gave up much of the gains they made in 2014. While some of it can be attributed to broader market volatility, the sector was bogged down by multiple headwinds too.

With two-wheelers catering to a big chunk of the rural markets, manufacturers such as Hero MotoCorp, Bajaj Auto and TVS, and component suppliers to this segment, were affected due to lacklustre rural demand. Failed monsoons, lack of alternative means of income in rural areas and low crop prices also meant tractors sales failed to take off. Mahindra and Mahindra bore the brunt of this slowdown. The company was also affected due to the absence of the hot selling compact utility vehicle in its portfolio.

Stocks such as Motherson Sumi, Tata Motors, Amtek Auto and Castex Techonologies which plunged 30 to 90 per cent were plagued by other worries. For Motherson Sumi, it was the duping of emission checks in the US and the consequent recall of vehicles by Volkswagen, one of its top global clients. Tata Motors suffered from slowing Jaguar Land Rover sales in China, which is amongst its biggest markets. Amtek Auto and subsidiary Castex technologies tanked on debt default. Tyre companies dropped over worries of dumping of cheap tyres by the Chinese in the Indian markets.

On the other hand, Maharashtra Scooters, a company with no significant operations, galloped on speculation that it may be liquidated and that shareholders would benefit from its huge land bank and equity investments.

Multiple headwinds affected top-line growth of many companies. Net sales of auto and auto ancillary players that are part of the Nifty 500 index grew a mere 1.6 per cent in the half-year ended September 2015, over the same period last year. However, companies such as Maruti Suzuki , Ashok Leyland, Amara Raja Batteries and Wabco India were an exception to this, with the cyclical upturn in car and truck sales boosting top-line growth for these companies. But bottom lines of most companies got a fillip from a cooling off in prices of raw materials such as steel, copper, lead and rubber.

The overall picture of a 21.5 per cent fall in profits for the Nifty 500 companies though, is skewed by the sharp fall in profits for Tata Motors and losses made by those such as Amtek Auto and Castex Technologies.

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