Last Updated – March 2022
In the below article we will cover,
- Best Auto Stocks to Buy in India
- Summary Table of Best Auto Stocks
- Points to Check while picking Best Automobile stocks
- A Detailed profile, Pros & Cons of Auto Stocks in the Model Portfolio
- Risks & Challenges When you Invest in Automobile Stocks
- Watch our video on how to analyse Auto Stocks for investments
- Model Portfolio of Automobile Stocks
- A detailed table with various parameters of Best Auto Stocks
Best Auto Stocks to Buy in India
The automobile sector contributes about 50 % of the manufacturing GDP in India, 26 % of the industry GDP and 7.1 % of overall GDP. A lot of other sectors such as steel, iron, rubber, oil, glass, etc rely on the automobile and the auto component sector. The automotive sector accounts for about 15 percent of the country’s total tax collections and employs 3.2 crore people, directly and indirectly. This shows why the automobile sector is important for the health of the economy. India is the world’s fourth largest automobile market for vehicle sales by volume in the world only after China, USA and Japan. Car penetration in India is currently 28 per 1000 inhabitants, which is already 180 in China and over 800 in the US which lays out a huge runway for the sector over the long term. The two-wheeler segment dominates the Indian automobile market in terms of volume due to its young and growing middle class population. It accounted for 77.21% of the total vehicle sales volumes in FY21. The passenger cars segment which accounted for 15.62% of volumes is dominated by small and mid-sized cars. The Indian automobile industry is supported by various factors such as availability of skilled labour at low cost, robust R&D centers, and low-cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labour. Auto ancillaries and tyre industries are directly dependent on the original equipment manufacturers (OEMs). Demand for these industries mostly arise from the OEMs or the replacement market.
Besides Budget 2021 provides hope for the Auto industry with the introduction of the voluntary vehicle scrappage policy. The policy makes it compulsory to undergo a fitness test for private vehicles over 20 years of age and commercial vehicles over 15 years of age. Also a charge of green tax at the time of fitness renewal will dis-incentivize the use of older vehicles. Overall the Automobile Industry has a bright future over the long term period.
Summary Table of Best Auto Stocks
|Sr. No||Company Name||BSE Scrip Code||NSE Symbol||CMP as on Mar 08, 2022 (In Rs)||Rating||Industry|
|10||VST Tillers & Tractors||531266||VSTTILLERS||2,481.30||2||Automobile|
|13||Apollo Tyres||500877||APOLLOTYRE||171.35||0.5||Automobile- Tyres|
|14||Balkrishna Industries||502355||BALKRISIND||1,882.50||3||Automobile- Tyres|
|15||Minda Inds||532539||MINDAIND||929.45||0.5||Auto Ancillary|
|17||Motherson Sumi||517334||MOTHERSUMI||127||1||Auto Ancillary|
|18||Endurance Technologies||540153||ENDURANCE||1,112.90||4||Auto Ancillary|
|19||Exide Industries||500086||EXIDEIND||144.9||2||Auto Ancillary|
|20||Amara Raja Batteries||500008||AMARAJABAT||557.25||3||Auto Ancillary|
Points to Check while picking Best Automobile stocks
Automobile industry is a highly cyclical industry which means during an economic boom, automobile makers will be able to grow their volumes at a very high rate, whereas the volumes suffer during an economic downturn. This is because discretionary expenses are easier to cut from a consumer’s budget during hard times rather than essential costs. Before investing in automobile stocks, one should be very careful of this cyclical nature of the industry and not be caught at the extreme end of the cycle. Investors should also look at how companies deal with the cyclical nature and reduce their volatility. They try to cut down their costs during downturns while maximizing revenue during upturns.
Other than that, investors should look at automobile stocks which are fundamentally sound, who have strong balance sheets, proven track record and management capabilities. The companies should have visibility in growth and ability to come out stronger from downturns.
Factors such as High return ratios, lower debt to equity ratio, growth in wholesale & retail volumes on quarter on quarter & year on year basis, profit margins, etc should be looked at. The below mentioned model portfolio includes the best stocks in the Indian automobile industry one can invest in. It keeps in mind the above factors along with other strengths, weaknesses and consistency in performance.
A Detailed profile, Pro’s & Con’s of Auto Stocks in the Model Portfolio
Hero MotoCorp continues to consolidate its leadership position as the world’s largest two wheeler manufacturer for 19 years consecutively. The company has a high presence in rural India and has been a market leader in the entry and deluxe segment of motorcycles. It has expanded its product portfolio with entry into scooter, premium motorcycle segments and Electric Vehicle segments through strategic investment in electric two-wheeler manufacturer ‘Ather Energy’. and it has formed a joint venture with Gogoro to build a battery-swapping network in India. Moreover, the company launched a new Electric Vehicle brand ‘Vida’ to unveil its first electric scooter in July. With a focus on customer experience, expansion of distribution network & institutional sales, investment in brand building activities and ramp up of Research & Development it has been able to achieve great scale.
Hero Motocorp has consistently delivered superior return ratios with ROCE of over 24% and has a strong balance sheet with negligible debt and strong free cash flows. Looking at the negatives for the company, it is highly domestic dependent. Although it’s present in over 40 countries only 3.83% of its sales accrue from exports. In order to expand sales further, it will have to increase this exposure. It has been witnessing weak domestic demand trends since Mar’21 due to Covid-19 led headwinds in 2-wheelers especially at entry-level motorcycles. The company’s sustained efforts to expand its footprint in exports, premium bikes, scooters, and EVs is expected to augur well.
Bajaj Auto is another two-wheeler company that has proven itself over the years. What differentiates Bajaj Auto from other two-wheeler makers in India is its relentless focus on markets outside of India. Its growth and presence in the international markets have been on the back of its own brands as well as its alliance with KTM. This has enabled it to de-risk by not being over reliant on any one geography or product. It is by far India’s largest motorcycle and three-wheeler exporter.
The company’s revenue share from exports has increased from 28.2% in FY10 to 51% in FY21. Its revenue has grown at a CAGR of 9% over FY10-FY21 whereas profit after tax has grown at a CAGR of 12% over the same period. It also continues to dominate the three wheeler segment and remains the market leader. On the other hand, Bajaj has a poor presence in the scooter market.
Bajaj Auto was the leader in the scooter market till the motorcycle momentum picked up in the 1990s. The scooter business is booming once again and the company is back with its iconic scooter brand Chetak in the electric version to cater the increased demand.
Eicher Motors owner of iconic Royal Enfield leads the premium motorcycle segment in India. Royal Enfield has captured nearly 95% of the 250cc plus premium segment category. It enjoys a virtual monopoly in this segment without any intentions of entering the other segments. One of the main reasons for the strong brand name – Royal Enfield is due to its high-quality standards. Royal Enfield emphasizes on providing best quality to its customers.
The company also has a joint venture with the Volvo group, VE Commercial Vehicles Limited which designs, manufactures and markets reliable, fuel-efficient trucks and buses. Eicher Motors sales grew at a CAGR of 7% over FY10-FY21 whereas profit after tax has grown at a CAGR of 22% over the same period. Since Eicher Motors caters to the premium category, any economic downturn will affect the company the most. Also the threat of competition is increasing, with the advent of players like BMW, Triumph, Husqvarna, Honda, Norton, Benelli and UM in this space.
MRF is ranked India’s number 1 manufacturer and is among the worlds’ top 20 Tyre Manufacturers. It is also India’s largest Original Equipment Manufacturer (OEM) tyre supplier with an expansive tyre range from two-wheelers to fighter aircrafts. MRF is recognized for its drive towards continuous quality improvement and customer satisfaction. MRF was the first company to export tyres from India and still has a strong holding in the exports market across 65 countries.
It has a complete product portfolio with tyres for all types-heavy duty vehicles, SUVs, small & luxury cars, two & three wheelers, conveyor belts, paints & coats and pretread. It also has a strong financial position with a solid past record. Over two-thirds of MRF’s revenue comes from replacements. Higher share from this segment helps the company insulate from the cyclicality. However, the company is still exposed to cyclicality in its raw material prices–Natural Rubber and other crude derivative products.
Given the high competition, the ability to pass on RM price hikes in a timely manner is a challenge for all players. Further, MRF’s performance is dependent on the automotive demand, which exhibits cyclicality in most of the segment.
Maruti Suzuki set up as a joint venture between Maruti and Suzuki is India’s largest car maker selling more than half of the cars on road. It has created unmatched brand equity over the years. The company has a strong product portfolio with models in every segment. It focuses on continuous process improvement, effective cost control measures and flexible manufacturing processes. The company possesses a healthy balance sheet with 0 debt due to its strong cash generating ability and RoIC placed at a healthy 23%. However, the Indian PV market remains highly competitive, with existing and new players launching new models regularly. The number of players in this segment increased to 19 in fiscal 2020 from 7 in fiscal 2008. On the other hand, with growing popularity in the SUV segment, the company is strengthening its offering. Further, it plans to launch its first EV in 2025. Currently, Maruti is placing its best bet on CNG vehicles due to high fuel prices and increased CNG infrastructure. With more players and models vying for a share of the growing pie, competition in the domestic car market may intensify, resulting in price competition and lower realizations. The economic recovery from COVID-19 pandemic and improving income levels are likely to keep the demand strong in the medium term. Maruti’s strong distribution network and rural penetration will aid stronger growth.
Risks & Challenges When you Invest in Automobile Stocks
Over the last few years evolving customer needs, disruptive impact of technology and major regulatory reforms have gained center stage in the automotive ecosystem. Companies are facing increasing pressures to develop, upgrade and successfully launch new & innovative products to meet changing customer demand. In the recent past, Automobile industry has been struggling with insurance covers being made compulsory & BS-VI transition which has made the ownership cost of a vehicle rise very steeply. The threat of electric vehicles and of course the covid-19 pandemic are other challenges faced by the industry. Rising concern for climate change and sustainability has led to the need for alternative energy such as electric vehicles. This will disrupt Auto component companies as it has only 20 moving parts, while a regular petrol or diesel vehicle has more than 2,000.
These newly emerging trends are truly testing the automobile company’s ability to grow. Companies will have to be fundamentally strong and capable to remain relevant. We believe that the companies in our model portfolio match these requirements and have witnessed several business cycles and emerged stronger each time. These companies have adapted and overcome several technological disruptions and can be counted on to continue doing so in the future as well.
Watch our video on how to analyse Auto Stocks for investments
Model Portfolio of Automobile Stocks
In order to get an exposure to best Indian auto stocks, you would need a total of Rs. 2,14,943.7 for the below curated portfolio as of March 08, 2022.
|Company Name||Weightage (%)||CMP (as on Mar 08, 2022)||Quantity||Total (Rs.)|
A detailed table with various parameters of Best Auto Stocks
|Sr. No||Company Name||BSE Scrip Code||NSE Symbol||CMP as on Mar, 08 2022 (In Rs)||Rating||Industry||Market Cap (Rs crores)||Price/Earnings||Dividend yield (%)||Debt/Equity||Return on Equity (%)||Return on Capital Employed (%)||Net Worth (In Crore)||Operating Margin (%)||Inventory Turnover Ratio||Topline Growth (3 Years CAGR) (%)||Bottomline Growth (3 Years CAGR) (%)||Working capital cycle (Days)|
|10||VST Tillers & Tractors||531266||VSTTILLERS||2,481.30||2||Automobile||2,142||23.8||0.81||0||14.6||19.5||706||12.3||4.9||0.03||-4.27||41.4|
|13||Apollo Tyres||500877||APOLLOTYRE||171.35||0.5||Automobile- Tyres||10,901||13.3||2.04||0.57||6.67||9.42||11,557||13.5||3.02||5.44||-0.51||7.29|
|14||Balkrishna Industries||502355||BALKRISIND||1,882.50||3||Automobile- Tyres||36,402||25.3||0.9||0.24||21.1||23.9||6,539||26.8||3.2||9.18||17.7||70|
|15||Minda Inds||532539||MINDAIND||929.45||0.5||Auto Ancillary||26,547||75.7||0.09||0.25||9.97||12||3,178||11.2||5.98||12.6||-10.1||10.6|
|17||Motherson Sumi||517334||MOTHERSUMI||127||1||Auto Ancillary||57,374||39.2||1.18||0.97||8.97||8.53||12,659||7.82||6.6||0.63||-14.1||-9.48|
|18||Endurance Technologies||540153||ENDURANCE||1,112.90||4||Auto Ancillary||15,688||29.4||0.54||0.15||15.8||16.6||3,702||13.7||6.61||1.02||8.7||27.1|
|19||Exide Industries||500086||EXIDEIND||144.9||2||Auto Ancillary||12,277||16.8||1.38||0.09||11.8||17||7,619||10.1||2.78||6.1||3.95||-8.52|
|20||Amara Raja Batteries||500008||AMARAJABAT||557.25||3||Auto Ancillary||9,514||15.8||1.97||0.02||16.2||21.6||4,374||13||3.84||5.67||11.2||54.8|
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