All Nifty Auto stocks gave negative returns in last one year. What should you do now?


Auto stocks have been under pressure for the last one year amid weak consumer demand and high raw material costs. The Nifty Auto index has fallen 31 percent in the last 1 year and over 17 percent in 2019 as compared to a 5 percent gain in benchmark Nifty in 1 year and a 6.5 percent rise in 2019.

Analysts expect all auto segments to continue facing demand headwinds even in 1QFY20 – continuing the trend of weak retails in the previous quarter. Retail demand further deteriorated due to liquidity issues and weak consumer sentiment, they said, adding that margins will be under pressure across the board, led by higher discounts and negative operating leverage.

Now is a good time to invest in automobile companies as they are trading at reasonable valuations, said Ajay Srivastava, CEO of Dimensions Corporate Finance Services.

In the last one year, no Nifty Auto stock has given a positive return. Big auto names like Tata Motors, Motherson Sumi, Ashok Leyland, Maruti Suzuki, Eicher Motors and M&M fell between 30-41 percent in the last 1 year. Other Nifty Auto stocks — Apollo Tyres, Hero MotoCorp, MRF, TVS Motor Company, Bharat Forge, Exide Industries, Amara Raja Batteries were also down over 20 percent each. Meanwhile, Bajaj Auto declined 13 percent and Bosch slipped 8 percent in the last 1 year.

Tata Motors was the worst-performing stock in the last 1 year, down 41 percent on poor JLR sales. For 2019, the stock has pared some losses but is still down 10 percent. Going ahead, analysts expect JLR volumes to continue to decline. In Q1, Motilal Oswal expects the company’s revenue to decline 15 percent YoY, resulting in a net loss of Rs 1,180 crore. It also slashed the company’s FY20 consolidated PAT by 3.7 percent.

Motherson Sumi also tanked 38 percent in the last 1 year, from Rs 266 in July 2018 to Rs 155 in July 2019. For 2019, the stock was the biggest dragger in the Nifty Auto index, down 28 percent. Consolidated PAT for the company is expected to decline 24 percent YoY to Rs 420 crore impacted by weak margins and higher depreciation.

Ashok Leyland fell 37 percent in that last 1 year and 18 percent in 2019. The stock fell from Rs 134 in July 2018 to Rs 84 currently. Volumes for the company fell 6 percent YoY to 39,608 units in Q1 FY20 on weaker volumes, higher discounts and negative operating leverage. MOSL expects net revenue to decrease 7 percent YoY to Rs 5,830 crore and PAT to decline 44.7 percent YoY to Rs 240 crore.

Auto major Maruti Suzuki also lost over 35 percent in the last 1 year and 19 percent in 2019 majorly on production cuts amid weaker sales. Volume in Q1 declined 18 percent YoY to 401.9 units. Analysts expect PAT and revenue to fall 31 percent and 15 percent, respectively (YoY).

Eicher Motors shed 32 percent in 1 year and 17 percent in 2019. The stock was trading at around Rs 29,000 in July 2018 but has fallen to around Rs 19,000 currently. According to MOSL, consolidated revenue would decline 8 percent YoY (-5.1 percent QoQ) to Rs 2,330 crore and PAT is estimated to decline 29 percent YoY (-25 percent QoQ) to Rs 410 crore.

M&M tumbled 31 percent in the last 1 year and 21 percent in 2019, while, Hero Moto Corp slipped 28 percent in 1 year and 19 percent in 2019. Among other companies, MRF lost 28 percent, Bharat Forge 25 percent and TVS Motor Company 25 percent in the last 1 year.

Going ahead, near-term headwinds notwithstanding, MOSL’s preference remains for passenger vehicles over commercial vehicles and two-wheelers. “PVs are likely to be least impacted by BS-6 transition and have less risk of EVs and competition, which, in turn, would reflect in better earnings growth. Our top picks in autos are Maruti Suzuki, and Motherson Sumi among large caps, and Ashok Leyland and Exide Industries among midcaps,” they added.