Time to load up on auto-ancillary; Espirito's 3 top picks

Moneycontrol Bureau

Brokerage house Espirito Santo is upbeat on the prospects on the Indian auto ancillary industry and feels it has the potential to overtake China. Espirito is betting on companies with a technological edge, global scale advantage or dominance of a niche.

“We see the current sluggishness as a cyclical blip in a structural boom. We think India’s auto and auto component industry could follow and surpass China’s growth path as India’s industry recently crossed the USD 3500 per capita income (PPP) consumption threshold, and the exports and replacement market will only support the growth,” said the Santo note.

Following are the three stocks that Santo is bullish on: 

Balkrishna Industries, Target price: Rs 362

With manufacturing facilities in India and its export orientation and focus on the OHT market, Balkrishna Industries is ahead of other global and domestic tyre companies. Given the ability to price products aggressively combined with ambitious capex plans, we expect it to gain market share from competitors. Also Read: IFCI has stiff resistance around Rs 40: SP Tulsian Bosch, Target price: Rs 10,625

Bosch caters to the high technology segment of the auto component industry and with its high barriers to entry, it enjoys pricing power and strong profitability. It will benefit from any upturn in the commercial vehicle cycle and from higher sales of diesel vehicles in India, as it has a near monopoly in diesel fuel injection system.

 

Motherson Sumi, Target price: Rs 200

We expect Motherson Sumi to leverage relationships gained through acquisitions, thus increasing cross product penetration, and to meet the greater demand arising from a shift in consumer preferences towards premium cars that have a higher level of content from its new plant. As a result, we estimate that consolidated revenues will grow at 33 percent p.a. over this period.