8 Auto Ancillaries Stocks To Buy Post Mixed Q1Fy23 Show By Automobiles

Sharekhan in its Q1Fy23 results review for the auto sectors retains the positive view for the space despite mixed performance. In the report, the brokerage notes, "Revenue reported better-than-expected performance during the quarter, while EBITDA and adjusted PAT fell below expectations. Tata Motors' results were severely impacted by JLR's weak operational performance, leading to net loss of Rs. 6,500 crore in Q1FY2023 versus expectations of Rs. 1,385 crore net loss. Revenue was above expectations because of price hikes, increased share of value-added products (especially for auto ancillary companies), and easing supply constraints of semi-conductors. New launches in OEMs helped demand to remain robust for both OEMs and ancillary companies. Exports were impacted by higher freight costs and supply constraints. Consolidated EBITDA margin of Sharekhan universe (excluding Tata Motors) declined 90bps q-o-q to 10.5% versus our expectations of 11.5%, marred by commodity price inflation, despite most companies being benefitted by cost reductions and positive operating leverage. Electric vehicles (EVs) continued to create traction among end-users, across segments, led by support from the government through subsidy incentives, tenders, and infrastructure spending. OEMs and auto ancillary companies announced increased investments for product development and capacity additions for EV segments during Q1FY2023".

Mixed performance by OEMs and ancillary companies in Q1:

The Sharekhan universe of automobile companies (excluding Tata Motors' performance) performed mixed results in Q1FY2023, with revenue reporting better-than-expected performance during the quarter. While EBITDA and adjusted PAT fell below expectations. Tata Motors' results were severely impacted by JLR's weak
operational performance, leading to net loss of Rs. 6,500 crore in Q1FY2023 versus expectations
of Rs. 1,385 crore net loss.

Chips crisis situation to ease gradually going forward:

Though, chips shortage continues to hurt revenue, the chips shortage situation is improving gradually. Domestic and global OEMs expect chips shortage to gradually normalise over the next 1-2 years.

Overall profitability to improve:

We expect demand to remain buoyant for 2Ws, PVs, and tractors, driven by the wedding and festive seasons and positive rural sentiments. The commercial vehicle (CV) segment is expected to continue its upcycle, led by improvement in economic activities.
Going forward, we expect margins to improve, driven by expected stability in input prices and operating leverage benefits. OEMs and auto ancillary companies may look to further pass input
cost inflations to clients.

Positive view retained for automobiles by Sharekhan:

"We remain Positive on the automobile sector despite near-term challenges such as rising inflation, increasing interest rate, and continued chip shortage. bust demand, easing supply constraints, and dropping commodity prices are likely to provide relief to auto OEMs and ancillary companies going forward", highlights the brokerage in its report.

8 Auto-ancillary stocks to buy post Q1Fy23 mixed show

Auto ancillary stock	CMP( as per the report)	Target price
Bosch	17359	19795
Sundram Fasteners	842	1030
Ramkrishna Forgings	188	238
Mahindra CIE	273	310
Gabriel India	145	169
Greaves Cotton	172	196
Balkrishna Industries	2168	2450
Apollo Tyres	260	303

Disclaimer:

Disclaimer: The above stocks recommended as a 'Buy' are taken from the brokerage report of Sharekhan. Readers should not interpret the story as an investment advice.

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