The year 2019 hasn't been a strong year for automobile stocks as the sector has been hit due to the slump in sales, decreasing production for most companies due to a fall in consumer demand and liquidity crunch.
Regulatory changes (Bharat Stage-IV to Bharat Stage-VI), rise in fuel cost, change in industry dynamics and proposal to increase registration fee on old and new vehicles have also added to the woes.
On a year-to-date (YTD) basis, except Bajaj Auto, all auto and auto ancillaries stocks in the Nifty Auto index have fallen. Nine of these stocks have declined double-digits. The Nifty Auto index has lost over 15 percent in this period. In comparison, the Nifty has risen over 9 percent in 2019.
M&M has cracked the most, down 36 percent, followed by Exide Industries, which lost 32 percent. Apollo Tyres, Ashok Leyland, Hero MotoCorp, Bosch, TVS Motor Company, Motherson Sumi and Bharat Forge had declined between 10-30 percent YTD.
Eicher Motors, MRF, Maruti Suzuki, Tata Motors and Amara Raja Batteries were also in red for this period.
Bajaj Auto was the only stock in green in 2019, up 18 percent. Edelweiss had recently upgraded Bajaj Auto to buy from hold and raised target price in the long term to Rs 3,651 from Rs 3,162.
The brokerage believes Bajaj Auto is better positioned than peers to handle the Bharat Stage-VI transition as around 40 percent of its exports will be immune to the change and the domestic three-wheeler cargo segment will also benefit. The brokerage sees a perceptible change in management's approach with a focus on sales, after-sales etc rather than just products.
The government's push to increase electric vehicles (EVs) also hurt the sector in the year. The GST Council has cut the rate on EVs and chargers, while the government proposed to increase taxes on traditional automobiles.
The commercial vehicle business has been impacted by a sharp decline in retail demand over the last 12 months, resulting in continued efforts on inventory reduction over the last six months, as per analysts.
They believe that the worst of volumes for CV is behind (barring any disruption during BS-VI transition), but sustained recovery in volumes would be gradual. India business margin recovery is entirely hinged on volume recovery, which most experts believe will be visible only from July-August 2020.
"Last time we saw such a severe slowdown was in 2013-2014, that was a period we saw such a severe slowdown for such a long duration. As mentioned earlier, we are seeing the challenges continuing. We are seeing a bit of marginal decline, negative growth in the passenger vehicle segment. The negative growth trend continues and the challenges, of course, are still there," said Rajesh Menon, the director-general of SIAM, in an interview with CNBC-TV18.
Nomura said two-wheelers would be hit hard due to a higher cost increase for them (around 2.5 percent) followed by cars and medium and heavy commercial vehicles (around 1 percent).
"We entered 2019 with a cautious view on autos and see few reasons to change it," CLSA said. It has sell ratings on 70 percent of its auto coverage and is underweight on the entire sector.
The valuations of most of the stocks in the auto space are attractive and could be considered for investment for the long term, however, the massive wealth erosion seen in the auto stocks will take some time to recover, suggest experts.
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First Published: IST