Last Updated – July 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 July 01, 2022 (In Rs)||Rating||Industry|
|10||VST Tillers & Tractors||531266||VSTTILLERS||2506.6||3||Automobile|
|11||Balkrishna Industries||502355||BALKRISIND||2172.05||2||Automobile- Tyres|
|12||Minda Inds||532539||MINDAIND||944.3||0.5||Auto Ancillary|
|14||Motherson Sumi||517334||MOTHERSUMI||117.7||2||Auto Ancillary|
|15||Endurance Technologies||540153||ENDURANCE||1410.95||4||Auto Ancillary|
|16||Exide Industries||500086||EXIDEIND||141.4||1||Auto Ancillary|
|17||Amara Raja Batteries||500008||AMARAJABAT||469.15||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
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 52% in FY22. In fact, International business recorded its highest ever sales of over 2.5 million vehicles for FY22. 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.
Mahindra & Mahindra Ltd.
Mahindra & Mahindra Ltd. (M&M) is the flagship company of the Mahindra Group. Its core business is mobility products and farm solutions. Today, it offers a wide range of products and solutions ranging from SUVs, pickups, commercial vehicles, and tractors, to electric vehicles, two-wheelers, and construction equipment. The group has a business presence in 100+ countries with 68 manufacturing facilities around the world. The company maintains a leadership position in the domestic tractor sector, with a market share of ~40% over the last decade.
The future would be defined by the firm’s focus on customer experience as it significantly enhances its design capabilities, builds differentiated brand strategy, leads digital transformation, and drives EV (electric vehicle) technology in the automotive space. M&M has an order backlog of 170k+ units in the booming utility vehicle segment, which is expected to be a key growth driver for the company. In an endeavour to create a very strong automotive product portfolio, the company plans to leverage its platforms to launch 23 new products by CY 2026: 9 SUVs & 14 LCVs. On the other hand, the auto giant plans to build a strong product pipeline of farm machinery, in partnerships with global CoEs. The company is also exploring exports and inorganic acquisitions to rapidly scale up the segment. The management’s aggressive business growth plans will lead to value creation for shareholders. On the other hand, rural stress, commodity price inflation, and chip supply difficulties may continue to weigh on margins in the near term.
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. The company has delivered impressive return ratio metrics over the last 5 years as its ROE and ROCE stand at 19.5% and 27.2% respectively. Since Eicher Motors caters to the premium category, it is prone to stiff competition led by an increasing presence of global as well as Indian players. Further, Royal Enfield is highly dependent on Indian markets and remains exposed to geographical concentration risk.
TVS Motor Company is the third-largest 2-wheeler company in India with a revenue of over Rs 18,217 crore (over US$2.9 billion). It has an annual sale of more than 3 million units and an annual capacity of over 4.95 million vehicles. The company is also the 2nd largest exporter in India with exports to over 60 Countries. TVS Motor’s strength lies in its extensive research and development, resulting in products that are industry-leading in terms of innovation.
Due to the strong product line-up, unwavering focus on consumers, quality, cost, and strong new launches the company is confident about outperforming the industry ahead, in spite of the global challenges and a tough business environment. Further, the export of two-wheelers is likely to see growth ahead fuelled by strong demand for TVS products and due to its operations in diverse geographies that mitigate overall risk. The EV industry is the future of commuting and with the iQube, TVS Motor has marked a strong presence in this segment. In fact, the iQube network is expanded to 30+ cities across the country. On the other hand, the company has been a consistent wealth creator for investors as it has delivered an ROE of 20.8% over the last 5 years. The automaker also outperformed the broader Industry in FY22 which declined by 11%. However, the company is exposed to timely raw material availability, shortages of semi-conductor, and some EV-specific components that could lead to a burden.
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 28% Apart from hybrids, the carmaker is focusing on EV, CNG as well as ethanol and bio-CNG compliant engines. Further, it plans to launch its first EV in 2025. 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. Given Maruti’s limited presence in SUVs, its market share in passenger vehicles has dipped below 50% in recent times. However, the company is gearing itself to gain popularity in the segment through the launch pipeline of four SUVs.
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. 1,03,190 for the below curated portfolio as of July 01, 2022.
|Company Name||Weightage (%)||CMP (as on July 01, 2022)||Quantity||Total (Rs.)|
|Mahindra & Mahindra||30%||1107.35||28||31006|
|TVS Motor Company||14%||860.45||17||14628|
A detailed table with various parameters of Best Auto Stocks
|Sr. No||Company Name||BSE Scrip Code||NSE Symbol||CMP as on July, 01 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||2506.6||3||Automobile||2165.58||21.81||0.8||0||14.02||18.8||749.54||14.54||5.57||11.57||24.19||168.07|
|11||Balkrishna Industries||502355||BALKRISIND||2172.05||2||Automobile- Tyres||41989.46||29.71||0.74||0.36||21.86||23.84||6933.01||24.22||3.11||16.77||23.39||85.8|
|12||Minda Inds||532539||MINDAIND||944.3||0.5||Auto Ancillary||26995.31||75.87||0.13||0.27||12.5||14.27||3438.45||10.65||5.87||12.06||7.68||36.78|
|14||Motherson Sumi||517334||MOTHERSUMI||117.7||2||Auto Ancillary||53172.32||59.67||1.27||0.69||5.38||8.04||20452.26||7.02||6.42||0.01||-17.87||-0.27|
|15||Endurance Technologies||540153||ENDURANCE||1410.95||4||Auto Ancillary||19846.82||40.98||0.44||0.11||12.94||14.59||3919.99||12.78||6.73||0.18||-1.24||48.8|
|16||Exide Industries||500086||EXIDEIND||141.4||1||Auto Ancillary||12019||2.76||1.41||0.05||48.8||49.61||10583.74||10.94||3.16||-4.58||78.01||63.94|
|17||Amara Raja Batteries||500008||AMARAJABAT||469.15||3||Auto Ancillary||8013.67||15.67||0.96||0.03||11.67||15.7||4551.39||11.76||3.78||8.58||1.97||53.53|
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