Auto shares in focus; Motherson Sumi, Varroc, Sharda Motor rally up to 10%

As of 10:09 AM, the S&P BSE Auto index was the top sectoral gainer up 1.1 per cent as compared to 0.31 per cent decline in the S&P BSE Sensex

Shares of automobiles and auto ancillaries companies were in focus in trades on Tuesday with Motherson Sumi Systems, Varroc Engineering, JBM Auto, VST Tillers Tractors and Sharda Motor Industries ralling up to 10 per cent on the BSE on expectation of improved outlook.

Maruti Suzuki India, Tata Motors, Hero MotoCorp, MRF, Mahindra & Mahindra were up in the range of 1 per cent to 3 per cent in an otherwise subdued market. At 10:09 am, the S&P BSE Auto index was the top gainer among sectoral indices up 1.1 per cent, as compared to 0.31 per cent decline in the S&P BSE Sensex.

In October 2021, domestic commercial vehicle (CV) volumes witnessed robust growth, aided by better freight availability/rates. Other segments were subdued due to factors such as supply issues, muted rural sentiments and a high base due to inventory filling last year. Improving chip supply is expected to aid sequential improvement in volumes for passenger vehicles (PVs) and premium motorcycles ahead, analysts at Emkay Global Financial Services said in sector update.

The brokerage firm retains a positive view on the auto sector, underpinned by expectations of a cyclical upturn in the next three years.

Among the individual stocks, Sharda Motor Industries was locked at the 10 per cent upper circuit at Rs 728.90 on the BSE. Motorson Sumi Systems surged 8 per cent to Rs 253 in intra-day trade. The stock trading close to its 52-week high level of Rs 273 touched on June 2, 2021.

Motherson Sumi primarily serves global PV industry with wiring harnesses, vision systems (mirrors) & plastic body parts as key product lines. While announcing September quarter (Q2) results on November 12, 2021, the management said the chip shortage situation is improving gradually but the recovery is not yet at desired levels. The same is affecting global PV offtake despite strong demand. The raw material prices remain elevated, particularly copper.

Tata Motors was up 3 per cent at Rs 522, trading close to its 52-week high of Rs 532 touched on October 14, 2021. ICICI Securities expect Tata Motors to report healthy 24 per cent revenue CAGR over FY21-23E backed by 22.2 per cent volume CAGR (albeit on a low base). The cost control, efficiency improvement-led FCF generation targets for ongoing deleveraging push (FY21 net automotive debt at around Rs 41,000 crore). The continued electric vehicle (EV) alertness in India (PV market leader with Nexon; plans to introduce 10 models by 2025) and JLR (Jaguar all-electric by 2025; six BEVs in Land Rover in the next five years).