Indian Auto Component manufacturers have registered an improved financial performance in the past couple of quarters on the back of higher volumes arising from the domestic market. Cost cutting initiatives, improved productivity and better financial management during the meltdown (Q3 FY09-Q1 FY10) provided additional traction to their financial performance. We believe the momentum is expected to continue based on the following factors:
± Strong domestic demand for automobiles
± Replacement demand gaining traction
± India emerging as automobile manufacturing hub
± Rising automobile component sourcing from India
Apollo Tyres - BUY
CMP: Rs70, Target: Rs84
± Replacement demand and higher radialization of CV tyres to drive domestic performance
± Foreign subsidiaries to gain from global economic recovery
± Margin scenario is expected to improve
± Initiate with a BUY rating on back of overall growth
Bharat Forge - BUY
CMP: Rs267, Target: Rs295
± Domestic operations on strong revival as CV volumes surge
± International subsidiaries to witness improved performance
± Non-auto business to witness strong growth
± Recommend BUY on strong earnings growth
Exide Industries - BUY
CMP: Rs112, Target: Rs130
± Strong replacement demand to buoy automotive segment performance
± Industrial segment will provide additional momentum
± Lead sourcing strategy to expand margins
± Recommend BUY on strong earnings momentum
Motherson Sumi - BUY
CMP: Rs143, Target: Rs175
± Diversified product portfolio and market presence
± Wiring harness business to gain traction from domestic sales
± Visiocorp acquisition takes MSSL into tier-I league
± Tier-I status to justify premium valuations