Sector Update - Auto - March 2022 - ICICI Direct

The automobile sector is an important constituent of domestic manufacturing economy; however, it has been facing a lot of unsettling bumps on the road over the past few years. These included revised axle load norms for the CV space, mandatory long term third party insurance at the time of new vehicle purchase, change in emission norms from BS-IV to BS-VI, Covid-19 led volume disruptions, spike in fuel prices, shortages of semiconductor chip and recent commodity inflation led increase in vehicle prices. This has led to high double digit increase in vehicle prices with consequent domestic sales volume declining in excess of ~30% from the past peak attained in FY19. As things were settling down, with 4-W and CV space depicting clear signs of revival, the industry is now witnessing geopolitical crises leading to further rise in commodity prices, re-surfaced chip availability concerns. However, the situation is quiet fragile and volatile with either side sharp move in commodity prices making it difficult to incorporate the same in our numbers. However, with near term disruption at bay, we build in lower volume growth & gross margins (~50-60 bps) for our coverage companies, going forward. Consequently, we downgrade our earnings estimates by ~8-10% along with target prices.

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Link to the report

Source : Equity Bulls

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Auto SectorUpdate ICICIDirect