Auto Stocks Outlook for the week – 22 to 26.05.2017

Auto Stocks Outlook for the week – 22 to 26.05.2017

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Auto Stocks Outlook for the week – 22 to 26.05.2017 )

Stocks of most automobile companies are seen trading higher next week. Focus will be on stocks of Maruti Suzuki India Ltd and Tata Motors Ltd. The much waited announcement on Goods and Services Tax rates on automobiles is unlikely to have any impact on shares of automakers, as the final tax was along expected line. Most vehicles were kept at 28% rate under GST, with varying cess, taking the total indirect tax on vehicles to levels similar to the current structure. We don't see any material difference on companies as these prices (GST rate) will be passed on to the consumers and demand will not be hit severely by 2-3% price increase. On Tuesday, Maruti Suzuki had launched new Dzire compact sedan, which is likely to push its sales up. So far, Vitara Brezza compact sports utility vehicle and Baleno hatchback have been the primary driver of the company's Growth. The company's aggressive network expansion strategy has boosted its prospects. The carmaker has planned a capital expenditure of 45 bln rupees for 2017-18 (Apr-Mar), and a large chunk of which would go towards buying new properties to open sales and service outlets. Stocks of Tata Motors are seen extending gains from this week. The company had last week. India Meteorological Department's revised projection of a near normal monsoon rains is also seen helping the company, which has a substantial demand in rural regions. A good monsoon rain is likely to increase rural demand as it would increase disposable income. This is likely to benefit most automobile companies, especially Hero MotoCorp Ltd. A good season for agriculture is also likely to benefit tractor-makers and commercial vehicle manufacturers like Escorts Ltd and Tata Motors Ltd. The leader in the entry-level motorcycle segment, Hero MotoCorp Ltd, is likely to see a sharp rise in demand with the onset of good monsoon as it derives a large share of the demand from rural markets. The company also plans to launch six new models in 2017-18 (Apr-Mar). The automaker plans to invest 25 bln rupees in business development and capacity expansion over a period of two years. The two-wheeler manufacturer also plans to expand its scooter segment to Consolidate its position in the two-wheeler market across rural and urban markets. Bajaj Auto Ltd, which reported Jan-Mar earnings on Thursday, said its margins in the coming quarters are expected to contract due to a rise in prices of raw materials. However, the company remained optimistic about a steady recovery in exports this year.

Source : Cogencis Information Services Ltd.