Parts Is Better Than Whole: Motilal Oswals Thematic View
The key factors currently shaping the auto industry dynamics include:
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focus on meeting emission targets backed by requisite policy support from the government,
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marked shift towards premiumisation across segments.
Original equipment manufacturers who are the best placed to adapt to these changes are likely to be the key “winners” in the long run, in our view.
On the growth front, the auto industry is likely to take a breather in FY25, after experiencing strong demand in the last two years.
We expect the two-wheelers/passenger vehicles/commercial vehicles to post 9%/6%/6% compound annual growth rate over FY24-26E.
On the other hand, we believe the auto component industry is witnessing multiple growth opportunities in the long run with the emergence of India as one of the beneficiaries of the supply chain de-risking strategy by global OEMs.
Given this and the relatively attractive valuations, we prefer auto ancillaries over OEMs at this stage.
Our top picks in the Auto OEM segment are Maruti Suzuki India Ltd. and Ashok Leyland Ltd. and the same in auto ancillaries are Craftsman Automation Ltd., Samvardhana Motherson International Ltd. and Happy Forgings Ltd.
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