Auto shares in focus ahead of January sales; M&M up 2%, nears record high

Analysts remain positive on the auto sector given the expectation of double digit volume growth coupled with benign commodity price outlook leading to healthy margin recovery.

Shares of automobiles companies were in focus and traded higher up to 2 per cent on the BSE in Tuesday’s intra-day trade in an otherwise subdued market ahead of the release of January sales numbers on Wednesday, February 1.

At 01:15 PM; the S&P BSE Auto and Nifty Auto index were up 1.5 per cent each, as compared to 0.02 per cent decline in the S&P BSE Sensex and Nifty 50 index.

Ashok Leyland, Mahindra & Mahindra (M&M) and Tata Motors quoted 2 per cent higher, while Eicher Motors, Maruti Suzuki India and Hero MotoCorp were up in the range of 1 per cent to 1.5 per cent. Samvardhana Motherson International, Balkrishna Industries, Bosch, Sona BLW Precision Forgings, MRF and Bharat Forge were among auto related stocks trading with gains in the range of 1 per cent to 4 per cent.

According to Emkay Global Financial Services, in January 2023, passenger vehicles (PV) volumes are likely to be higher on healthy order book and ramp-up in production.

Further, commercial vehicles (CVs) are likely to maintain their double-digit growth momentum on better freight availability. In addition, tractor volumes are likely to be better on improving customer sentiments and finance availability. Lastly, 2W volume growth should be positive, supported by festive season (Uttarayan) and marriage season demand, the brokerage firm said in auto sector report.

With an underpenetrated PV category domestically, government spend on infrastructure, improved fleet utilisation, strong order book aided by a slew of new launches, analysts at ICICI Securities expect PV, CV space, in particular, to witness healthy growth in sales volume, going forward. We remain positive on the auto sector given the expectation of double digit volume growth coupled with benign commodity price outlook leading to healthy margin recovery, the brokerage firm said.

Among the individual stocks, M&M was up 2 per cent to Rs 1,358.25 on the BSE. The stock was trading close to its all-time high level of Rs 1,366.30, touched on November 1, 2022.

According to Crisil, M&M’s auto segment should continue to report healthy volume given the strong order book of the launched models, including Scorpio N and XUV 700 and Thar.

Furthermore, M&M is expected to add new models, including XUV-400 (electric sport utility vehicle) and vehicle refreshes. Tractor volume growth is expected to moderate in the second half of fiscal 2023 given the high base yet remains healthy, aided by a strong rural economy. Operating margin should be supported by easing commodity inflation and multiple price hikes taken by the company, the rating agency said.