**[investwise]** Daiwa: Buy Auto Component Producers

 

We initiate coverage of four auto-component stocks in this report: Apollo Tyres, Bharat Forge, Exide Industries (Exide) and Motherson Sumi Systems (Motherson). We are positive on these stocks because the companies are market leaders in their respective segments and have strong pricing power, which we believe would help to provide a buffer against escalating raw material costs. We like Apollo Tyres, as we believe it would be the key beneficiary of the shift toward using radial from cross-ply (bias) tyres in commercial vehicles (CVs) in India, Bharat Forge due to its strong non-automotive business expansion, Exide due to its competitive advantages in backward integration, and Motherson due to its strong capabilities in its various business segments, which we believe would help to boost its revenue.  We see the key investment themes as: Pure plays on global passenger-car sales-volume growth (Motherson), a recovery in the European economy (Bharat Forge and Motherson), pure plays on an increase in domestic auto-sales volume (Exide), and plays on diversification into non-auto segments and proxies for increases in power generation (Bharat Forge). We see the key downside risks to our recommendation as: 1) any slowdown in the shift towards radial tyres in CVs, 2) greater-than-expected increases in raw-material prices (steel,rubber, lead and copper), and 3) any significant deterioration in the European economy, which we believe would have a negative impact on Bharat Forge and Motherson. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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