As Tesla drives home record sales, can Indian autos take a leaf out of its book?

While Tesla’s robust sales is seen as positive for Indian auto ancillaries, however, the entry of the leading electric car maker could negatively impact domestic OEMs as it will stir intense competition. Nevertheless, auto ancillaries are seen as well-placed amidst this scenario.

At the time of writing, the BSE Auto index traded at 34,774.10, down by 145.64 points or 0.42%. The index erased its lifetime high of 35,239.31 which was recorded in the early deals of Monday’s session.

Cummins India was the top loser with a drop of 2.6% followed by Apollo Tyre down by 2.07%, and UNO Mindo diving by 1.9%. Major firms like Bajaj Auto shed 1.8%, MRF dipped by 1.6%, and Maruti Suzuki fell by 1.04%. Also, Balkrishna Industries, Tube Investments, TVS Motor, Hero MotoCorp, Bosch, and Tata Motors dived by 0.4% to 1%.

On the gaining front, Eicher Motors took the lead with an upside of 1.34% followed by M&M up by 1.2%. Samvardhana Motherson International and Ashok Leyland inched up as well.

According to Centrum, June auto sales have been subdued however in line with expectations.

Not even Tesla’s strong sales in June could not keep the spirits high in Indian auto stocks.

In the second quarter of 2023 (April to June), Tesla posted record sales in the April-June quarter with deliveries rising 83% from a year ago, beating analysts’ estimates. The Elon Musk-backed electric vehicle giant registered production of 479,700 and deliveries of 466,140 in Q2 of 2023.

According to Ashwin Patil, Senior Research Analyst at LKP Securities, Tesla is one of the major clients for Indian auto companies having a presence globally, particularly in North America.

Patil said, “Tesla’s sales and production growth seen in June is definitely positive for auto ancillaries in India as well which will enable higher business and order book for them.”

But he also said, “Entry of Tesla in India will have a negative impact on OEMs though since this shall bring in solid competition on the EV front. However, auto ancillaries should benefit out of this.”

After June sales, Motilal Oswal has recommended buying in 3 stocks while it said neutral on two auto stocks. These are:

Maruti Suzuki: (Buy for a target price of ₹11,000):

The company’s June wholesales were in line with Motilal’s estimates. The brokerage estimates Maruti’s FY24E volumes to grow by ~19% YoY, implying a residual growth

of 23%, or run-rate of ~187.1k units. Also, the stock trades at 26.5x/23.2x FY24E/FY25E earnings, and hence, it maintains a ‘Buy’ rating.

Tata Motors: (Buy for a target price of ₹670):

Motilal’s note said, “TTMT CV volumes (above our estimate) declined 8% YoY to 34.3k units (est. 29.9k units). M&HCV volumes are flat YoY to ~14.3k (above our estimate of 12.1k). LCV volumes declined 13% YoY to ~20k units (above our estimate of 17.9k).”

The brokerage is estimating ~8% growth in M&HCV volumes for FY24E, implying a 13% residual growth, or monthly a run-rate of ~17.7k units. For LCVs, it estimates flat in FY24E, implying a residual growth of 8%, or a run-rate of 20.5k units.

For passenger vehicles, Motilal estimates 8.5% growth in FY24E, implying a residual growth of 9% or a monthly run rate of 49.6k units.

Overall, Motilal said, “We estimate a 6.5% growth in total volumes for FY24E, implying a 9.5% residual growth, or a monthly run-rate of ~80.9k units.”

Eicher Motors: (Neutral for a target price of ₹3,700):

Motilal said, “Royal Enfield’s (RE) dispatches grew by 26% YoY to 77.1k units (est. 74.9k units). Exports which were muted for the last 2 months improved 44% MoM to 9.6k units; down 14% YoY.” Also, the VECV’s wholesales were in-line.

Accordingly, the brokerage estimates RE volumes to grow by 13% in FY24E, implying a residual growth of 10.5%, or a run-rate of 79.5k units. Further, it expects 14% growth in volumes of VECV for FY24E, implying a monthly run-rate of 7.9k units.

Hero MotoCorp: (Buy for a target price of ₹3,475):

In its note, Motilal said, “We estimate volumes to grow by 8% in FY24E, implying a residual growth of 11.5%, or a run-rate of 488k units.”

Also, the brokerage said that the onset of monsoon in most parts of the country and overall economic indicators bode well for a growth in demand, and industry volumes are expected to pick up leading into the upcoming festive season.

Escorts: (Neutral for a target price of ₹2,000):

The brokerage expects Escorts’ tractor volumes to grow by ~5% in FY24E, implying a monthly run rate of ~9.1k units, or a 7% residual growth.

It added, “We are estimating a 12% growth in Construction Equipment for FY24E, implying a monthly run-rate of 422 units, or a 4% residual growth.”

Updated: 03 Jul 2023, 03:43 PM IST