On Friday, March 13, brokerage firm JPMorgan wrote in its note that the ongoing war in West Asia, and rising commodity prices as a result, are creating dual risks of production disruption and cost inflation for the auto sector.
Ashok Leyland, Bharat Forge, Tata Motors Passenger Vehicles, TVS Motor and Eicher Motors are the worst performing stocks on the Nifty Auto index this week, with all of them declining in excess of 10%
Among the specific risks and challenges for the sector, here’s what JPMorgan highlighted:
- Gas (LNG / LPG) shortage could lead to production shutdown / disruptions
- Potential disruptions to CNG availability at pumps could impact consumer preference
- Higher fuel and commodity costs could hurt margins
- Global shipping disruptions could impact exports
- and weakening consumer sentiment could also hurt the recovery that has been seen post the GST cuts.
So far in March, the retail volumes have remained strong, according to JPMorgan, who has highlighted its preference for stocks like Maruti Suzuki India, M&M and Hero MotoCorp, within the sector, led by a combination of relative growth visibility and valuation support.
In a separate note on Thursday, Nomura had highlighted that their analysis of energy usage indicates that gas commands a meaningful share in the operations of these companies.
It highlighted Maruti, TVS Motor and Bajaj Auto as companies most exposed to gas shortage and higher spot gas prices, while among auto ancillaries, it highlighted Balkrishna Industries, Apollo Tyres, Uno Minda and Bharat Forge falling into this category.
Shares of Ashok Leyland are down 13% so far for the week, while Bharat Forge and Tata Motors PV are down 12% and 11% respectively. Mahindra & Mahindra, Maruti Suzuki, Eicher Motors, TVS Motor are down 10% each.
