4 stocks to go for in auto and auto ancillary space: Mitul Shah

“Among commercial vehicle makers, Ashok Leyland seems to be promising and among auto ancillaries, tyre companies are going to benefit largely because of raw material price benefit as we all know that crude prices corrected significantly and in more than 50% of these companies, raw material is based on the crude and crude derivatives. We like Ceat, Apollo Tyre and on the auto side Ashok Leyland, Mahindra Escorts,” says Mitul Shah, Head of Research, Reliance Securities.

What is the outlook on a month-on-month basis for passenger vehicles? What are you expecting for two-wheelers as well as the tractor sales? Is it likely to remain a little bit muted?
Definitely. Seasonally, big Hindu festivals like Navarati and Diwali are considered to be the biggest period for the auto industry in terms of sales volume. So post that, there is always a decline in the range of 15-30% on a month-on-month basis and the trend will be visible this month also.

YoY comparison may not be meaningful here because last year, November had the Diwali festival and the volumes were supported by it. However, on the other hand, there was a huge supply constraint for passenger vehicles so base was very low so the YoY basis there would be growth on most of the segments but month on month due seasonality we will see decline in PV as well as two wheelers also.

Just building upon that point as well. As the number starts trickling in, is there any channel check whether there is going to be a change in the pecking order for the automakers and their market share?
Within the auto segment, a positive surprise is coming on the tractor side, though this segment has also witnessed a month-on-month decline post the festival impact. But compared to the numbers which the Street is expecting for the tractor industry on a YoY basis, the industry is coming more or less flat or is showing a marginal growth against the Street expectation of 5% to 10% decline.

So this segment seems to be more promising. Escorts and Mahindra & Mahindra would benefit from this. On the other hand, the commercial vehicle segment due to ongoing infra activities by the government as well as the overall pick up, particularly in the bus segment is showing normalisation post Covid. Commercial vehicles as a segment seems to be more promising and this segment is not witnessing the slowdown which is faced by two-wheelers due to rural slowdown.

Among commercial vehicle makers, Ashok Leyland seems to be promising and among auto ancillaries, tyre companies are going to benefit largely because of raw material price benefit as we all know that crude prices corrected significantly and in more than 50% of these companies, raw material is based on the crude and crude derivatives. We like tyre companies the most. Ceat, Apollo Tyre and on the auto side Ashok Leyland, Mahindra Escorts.