Auto ancillary stocks rally; Amara Raja, MRF, Balkrishna Ind hit 52-wk high

The July-September quarter (Q2FY21) was marked by a sharp rebound for the auto sector from the washout Q1FY21 performance.
Shares of auto ancillary companies were in focus on Monday with MRF, Balkrishna Industries, Amara Raja Batteries and Jamna Auto hitting their respective 52-week highs on the expectation of strong revenue growth.

The July-September quarter (Q2FY21) was marked by a sharp rebound for the auto sector from the washout Q1FY21 performance. Demand outstripped supply for major players as production, distribution levels climbed to successively higher levels throughout. Dispatches picked up sharply in September in the run-up to the festive period.

Balkrishna Industries hit a fresh record high of Rs 1,690, up 5 per cent on the BSE in the intra-day trade on Monday. In the past month, the stock has outperformed the market by gaining 23 per cent against a 9 per cent rise in the S&P BSE Sensex.

The company had reported the highest ever quarterly sales volume in Q2FY21. EBITDA (earnings before interest, taxes, depreciation, and amortisation) expanded to 34.0 per cent from 27.9 per cent in Q2FY20. The demand continues to be strong in the agriculture segment across geographies. In other segments, demand continues to remain stable, the company said. Analysts believe Balkrishna Industries provides superior risk-reward vis-à-vis peers due to its standout earnings resilience. The continued improvement in growth remains the key catalyst for the stock.

MRF hit a fresh 52-week high of Rs 81,000, up 2.4 per cent on the BSE, thus gaining 26 per cent in the past month. The stock of the tyre major was trading close to its record high of Rs 81,423 touched on April 30, 2018.

“Channel filling due to festival season has led to huge OEM demand in September and October which is likely to continue in November. We believe the uptick in OEM volume and strong traction in replacement demand to aid strong revenue growth in FY22 for Ceat. Moreover, the ban on Chinese tyres will also aid growth in PCR replacement segment,” analysts at Dolat Capital said in the result update.

Shares of Amara Raja Batteries touched a fresh 52-week high of Rs 878, up 2 per cent on the BSE. The robust replacement demand, coupled with a pick-up in OEM/industrial segments, is expected to support revenue performance going ahead. The company’s market share gains are also expected to continue, said analysts at Emkay Global Financial Services.

“Going forward, we expect sequential improvement across segments to continue – with recovery seen being more rounded vs. rural focused earlier. The just-concluded festive season witnessed a decent response (especially in PV, 2-W), while industry tailwinds for tractor segment (record crop production, strong monsoons, sustained government support) remain in place. Increase in prices of key inputs (steel, rubber, etc.) could pressurise Q3FY21E margins, however,” ICICI Securities said in auto and auto ancillary earnings wrap.

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