Auto Stocks Outlook: Down next week on hike in excise duty

[B. Karthick]

Auto Stocks Outlook: Down next week on hike in excise duty

Frontline automobile shares are seen down next week, as the already
faltering volume growth will be further hit by the increase in excise
duty
on utility vehicles and large cars.
The government today imposed extra duty of 15,000 rupees per unit
and
20,000 rupees per unit on utility vehicles of over 1,500 cc and 2,000
cc,
respectively.
The duty is applicable to large cars also.
Outlook for auto sales has been weak due to the rising prices of
crude
oil and metals such as like steel and aluminium.
Worries auto loan rates may be hiked have also been plaguing the
industry
after Reserve Bank of India hiked its repo rate 25 basis points to 8%
Wednesday.
The cost of owning a vehicle is also going up and with rising fuel
prices and material costs, it looks like a bad year for the auto
industry.
Industry growth for 2008-09 (Apr-Mar) may fall to 11-12% from an
estimated 14-15% due to the above factors.
Banks are being choosy about who they lend out to, particularly in
two-wheelers and commercial vehicles. So, even if they do not hike
interest
rates, there is tightening coming in.
A strong revival in sales for at least another year.
We are neutral on automobile shares as the rising fuel and input
costs
are likely to slow down growth for another year in the very least.
We rated neutral on Bajaj Auto shares.While putting a high
volatility
risk on the stock and the upside is limited.
We expect Bajaj Auto's two-wheeler business to turn around in
financial
year 2009, thanks to rising exports and improved traction in the
domestic
market. However, this should be compensated by the structural decline
in
three-wheelers.
We rated Tata Motors as neutral.Increasing competition, decreasing
market share, and the task of a turnaround in Jaguar's business will
pose a
challenge for the company.
Hero Honda shares is seen taking support initially at 778 rupees and
then
at 742 rupees, while supports for Maruti Suzuki India is seen at 710
rupees
and then 684 rupees.

Following are this week's prices, in rupees, of key automobile
shares
compared with previous week on National Stock Exchange:

Jun 13 Jun 6 Change (%)

Ashok Leyland 32.25 32.35 - 0.31
Bajaj Auto 505.90 568.80 -11.06
Hero Honda 784.25 756.05 3.73
Mahindra & Mahindra 570.25 580.65 - 1.79
Maruti Suzuki 722.15 750.00 - 3.71
Tata Motors 516.15 540.20 - 4.45

BSE Auto Index 4,129.79 4,227.32 - 2.31
Nifty 4,517.10 4,627.80 - 2.39
Sensex 15,189.62 15,572.18 - 2.46
End

B.Karthick,
Research Analyst.