Auto comp shares piggyride on vehicle boom

---

GMI

MUMBAI, FEB 17: Booming vehicle sales and outsourcing by foreign firms are expected to lift shares in the auto parts companies by as much as 40% in the fiscal year starting in April, analysts said. Sales of passenger vehicles — cars, vans and utility vehicles — in India have jumped 22% in the first 10 months of this fiscal year, while truck and bus sales grew 28% and motorbikes and scooters climbed 17%.

That growth is expected to accelerate as rising middle-class incomes and cheap credit in Asia’s fourth-largest economy spur demand in a country where only eight of each 1,000 people own cars. Exports have also been growing at nearly 30% annually as foreign companies shift production of auto parts to low-cost countries such as India and China. Analysts say that trend should continue even though rising steel and rubber prices could squeeze margins.

“I think growth is going to be driven by a combination of domestic and export demand ... and there is great possibility of increasing scales in the export business,” said Jigar Shah, head of research at brokerage KR Choksey Shares & Securities.

Shares of leading auto parts companies have jumped 65% on average in the current financial year, and despite high price earnings multiples of 14-20 on forecast full-year earnings, the outlook was bright, analysts said.

“The relatively high PE multiples reflect high expected future industry growth,” said Mr Shah, who predicted shares to rise up to 40% over the next 12 months.

Shares in Bharat Forge Ltd, the world’s second-biggest forging company, have soared 85% since April 1, while those of India’s biggest auto parts company, Motor Industries Co Ltd, have jumped 34%.

By comparison, the Sensex has gained 18% over the same period. Amitabh Chakravarthy, head of research at the portfolio division of Kotak Securities, said he expected shares of the top companies would rise 40% in the coming fiscal year on the back of earnings growth of 25-30%. Mr Shah said his top picks included leading nuts-and-bolts maker Sundram Fasteners Ltd, fuel-injection equipment maker MICO, auto-electricals firm Denso India and bearings maker SKF India.

—Reuters