Automobile Components Makers Revenue Has Started To Grow

When Automobile Revs Up, Parts Makers would Not Left Far Behind

Maruti Suzuki by 60 per cent, Mahindra & Mahindra, Nissan, Hyundai and MG Motor have to cut their production due to the Chip Shortage.

According to the media reports, Passenger vehicles sales, in which SUVs Cars and vans, dipped 41 per cent in September. With the booking of over 500,000 units, Dealers were just sitting and waiting for certain vehicle models stretching to over six months. Car companies cut production down as semiconductor supplies dried up all the market leaders.

Makers of Auto Components are back started to catch Investors attention, as a rebound in vehicle sales and continue demand for Chips has changed the outlook for the sector.

Where The benchmark Nifty declined nearly 4% during this period, Shares of Suprajit Engineering, Minda Industries, Sona BLW Precision, Minda Corp and Jamna Auto have rallied between 10% and 30%in the past month.

Wabco India, Lumax Industries, and Lumax Auto gained between 5% and 10%.

Piyush Parag, an analyst at Sharekhan Said, “Auto ancillary stocks have been in the limelight in the past few weeks, on the back of a recovery in automotive sales, normalising production schedules and targets by their clients and comfortable valuations”.

He also mentioned, “The deep chips shortage issue that auto companies faced over a couple of quarters is gradually resolving, and auto ancillary companies are benefiting. Companies that have significant global exposure are well placed to benefit from the demand recovery.”

Morgan Stanley has mentioned, Last week, “The chip shortage, which hampered vehicle makers’ production in India, should be over, with chip output from Malaysia increasing in October.In October Foreign institutional investors and domestic mutual funds have enhanced their sector allocation to auto by 0.2% and 0.7%, respectively.

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Vinod Nair, Head of research at Geojit Financial Services Said “Supplier consolidation in the export market has given significant benefits to the Tier 1 Players while the transition from China to India as a major export hub by International OEM is bringing newer business opportunities and technological transfer,”. He mentioned buying, Bharat Forge, Minda Industries, Wabco, and Motherson Sumi because of their stronger technical expertise and increase in revenue share for EV products.

“We believe that the stabilisation in commodity prices and revival in the domestic demand is likely to push the margin upward for these companies,” said The Nair.

Bharat Forge, in a recent analysts call, said demand remains strong across markets, and commercial vehicles are expected to grow on a sequential basis. Mahindra CIE is optimistic about growth in both India and Europe during 2022 and 2023, but a lot would depend on the availability of semiconductors.

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“We like companies that have marquee auto OEMs and Tier-I clients in India and globally, and have proven sustainable business models and capital allocation histories such as Suprajit Engineering, Schaeffler India, Sundram Fasteners, Ramkrishna Forgings, and GNA Axles,” said Parag.