Automobile stocks step on the gas

Revival in sales fuels investor interest

A strong domestic demand and a growing export market have been the main reasons for the recent bout of expansion plans by most major automobile companies.

Listed heavyweight automobile firms such as Maruti Udyog, Tata motors, Mahindra & Mahindra, Bajaj Auto and Hero Honda have had a good run on the bourses in the last three months as investors bought these shares on expectations of good sales driving up profits. Market players point out that zooming vehicle sales has been driving these stocks to new highs.

They add that 2003-04 was definitely a milestone year for the automobile industry with passenger car sales zipping past the one-million mark, tractor sales limping back to normalcy after three years and commercial vehicles recording a 37 per cent growth.

Two-wheeler firms also saw a spurt in sales. Analysts say the auto sector story should only get better with most companies looking to expand capacities to meet higher demand. While most companies were stretched to meet demand last year, nobody is taking any chance this year, they said.

The blazing growth in the automobile sector last financial year has spurred even the most conservative player into action.

With crystal-gazers predicting an impressive growth rate for the sector in the 2004-2005 too, automobile companies are loosening their purse strings like never before.

Leading the pack with a series of surprise announcements is Maruti Udyog and its Japanese partner Suzuki Motor Company.

The small-car company, which has lined up a Rs 6,000 crore investment in the next five-six years, will add new products, another assembly facility and a diesel engine plant in partnership with Suzuki.

Other players going the greenfield route include Bajaj Tempo setting up new plants in Pithampur and Chakan, and Suzuki will invest in a plant for two-wheelers in Gurgaon.

In the passenger car industry, Tata Motors, which played the "will they, won't they" game for a long time, is finally set to increase capacity at its Pune plant from 1.5 lakh cars to 2.5 lakh.

Besides this, the company, along with its subsidiaries, has lined up a Rs 5,200 crore investment in the next three years for new products development and capacity expansion.

Mahindra & Mahindra will be increasing the capacity at its Rudrapur satellite tractor plant from 7,000-10,000 units per year to 25,000 by March 2005.

The automotive sector will also see increased production this year with Scorpio production expected to see a 25 per cent rise following a new wage agreement with workers at the Nasik plant.

General Motors (GM), which is already working on increasing the capacity at its Halol plant from 25,000 units to 50,000 units a year, has announced an investment of Rs 180 crore for the year but with its Chevrolet Spark a.k.a Daewoo Matiz revival plans underway, chances are pretty good the company will overshoot its target.

GM is expected to make major investments in its newly acquired Surajpur car assembly unit. Surprisingly, despite a superb performance in the previous year, no player has announced any major investment in the two-wheeler sector but analysts said eventually even they would join the expansion brigade.

Automobile sector analysts said every rupee invested in the auto sector will require Rs 2.50 of investment downstream in the auto component sector.

Market players said the automobile component sector will see a spurt in activity as they cater to the growing domestic and export market.