Short Call: Auto’s problems lie elsewhere, cement may struggle, Anup Engg, Asian Paints, RVNL, Globus Spirits in focus

Car makers offering discounts on certain models is routine, but the hammering of the M&M stock on Wednesday shows the multiplier effect that bad news can have when valuations are high.

The Uttar Pradesh (UP) government’s decision to waive road tax on hybrid vehicles could have ripple effects across the entire automobile sector, for both manufacturers and investors. Maruti Suzuki, Toyota, and Honda, the major players in the hybrid market, stand to benefit significantly from this move.

According to Citi Research, that Maruti's market share in UP was 44 percent in FY24, higher than its national average of 42 percent. Analysts at Macquarie say Maruti Suzuki, with a 20 percent market share in hybrids in 2023, could see significant market share gains, if it is able to cut costs by developing hybrid technology locally.

The question now is whether other states will follow UP’s lead. And even if they do, will it change the mood for the auto sector, particularly the passenger vehicle segment. The picture is not all that rosy right now as dealers have unsold stock, and players like Tata Motors and M&M are offering discounts to attract buyers.

Car makers offering discounts on certain models is routine, but the hammering of the M&M stock on Wednesday shows the multiplier effect that bad news can have when valuations are high.

Cracks in cement

UltraTech’s acquisition of 23 percent stake in India cement was expected to fire up sentiment for cement stocks. Nothing of that sort has happened. Ambit Capital’s Satyendra Jain and Prakhar Porwal write that rampant capacity addition in the quest for market share will continue to put pressure on cement prices.

“For now, industry capacity additions remain unabated with all players striving for market share gains. There is a risk to medium-term industry pricing considering expected supply additions are likely to outstrip demand additions,” write the duo.

Not piping hot

A mixed June quarter for building materials companies, according to ICICI Securities analysts Arun Baid and Sohil Kaura. Pipes and medium-density fibreboard (MDF) are likely to see healthy volume growth, while tiles, sanitaryware and plywood segments may continue to report muted demand. Pipe companies are seeing good demand from agriculture and in plumbing.

The Anup Engineering (Rs 1,787; -0.6%)

Equirus Wealth initiates 'long' coverage.

Bull case: The expected expansion of the heavy engineering industry can help the stock grow in the medium-to-long term as capacity expansion accelerates in end-user industries such as infra, power, mining, oil & gas, refinery, steel, others. The commissioning of its new Kheda plant, acquisition of Mabel, and focus on high-metallurgy products will also help enhance product mix and augur revenue growth.

Bear case: As exports constitute about 31 percent of the company's revenue, any slowdown in international markets can contribute to the stock's downfall. A significant downturn in the capex cycle of the end user industry may also restrict order-inflow for the company.

Globus Spirits (Rs 858, -0.2%)

InCred Equities bumped up its target price from Rs 1,562 to Rs 1,599

Bull Case: Raw material and power costs have normalized. After expansion into major whisky segments, InCred sees strong tailwinds for the firm. There is a rise in Indian Made Indian Liquor selling prices.

Bear Case: The rising price of broken rice/maize (ingredients to make ethanol) will impact the bottomline. Final prices are dependent on state/central government taxes which are subject to change.

Asian Paints (Rs 2,996.45, +3.15%)

The company has raised product prices by 0.7% to 1%, say reports

Bull case: Price hike demonstrates pricing power intact despite entry of a big player like Birla Opus, Nuvama pointed. Significant portion of the paint market remains unorganised, giving plenty of headroom for all industry majors to grow.

Bear case: Extended monsoons, an unexpected spike in oil prices may severely dent margins and eat away pricing power for Asian Paints.

RVNL (Rs 616, +13.5%)

Wins two orders, and signs a MoU with Tatweer Middle East & Africa LLP.

Bull argument: The company has order book of around Rs 65,000 crore, plus every year the company has a target for an order inflow Rs 25,000 crore. Expanding infrastructure projects, strategic collaborations, and consistent execution track record position it for significant growth.

Bear argument: Faces risks including project execution delays, reliance on government contracts, regulatory changes, economic slowdowns, funding challenges, increased competition, and cost overruns, all of which could negatively impact the company's profitability.

(Inputs from Lovisha, Zoya, Vaibhavi, and Harshita)