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Outsourcing gives kick-start to auto components stocks

Our Bureau

Mumbai , Nov. 25

THE boom in the automobile sector and good export potential for auto-component products brought lot of market interest in the auto-ancillary stocks in today's trading.

Brokers said with good monsoon this year, the demand for vehicles will increase and this will have a direct positive impact on the auto components industry.

Motilal Oswal Securities said the volumes that successful component exporters such as Bharat Forge, MICO and Motherson Sumi are witnessing are just the proverbial tip of the iceberg. "Volumes, though high for Indian manufacturers, are currently inconsequential by global manufacturing standards," the broking firm said.

Among the stocks that were bought heavily were Amforge, Denso India, Motherson Sumi System, Lumax Industries and Sundaram Clayton. Shares of other auto components companies were also on the buy list of both institutional and retail investors.

In today's trading on the BSE, Amforge stock gained 4.99 per cent at Rs 122.75, Denso India gained 16.27 per cent at Rs 60.40, Motherson Sumi System closed at Rs 282.50 (up 9.99 per cent), Lumax Industries closed at Rs 83.15, up 8.20 per cent and Sundaram Clayton gained 5 per cent at Rs 452.65.

Motital Oswal Securities said the advantages for the sector lies in adequate local raw materials availability, cheap labour leading to lower cost of production, abundant and cheap design and engineering skills.

Other than this, the environmental considerations in developed countries are forcing a shift of ancillary manufacturing units to developing nations like India.

The broking firm said India has an advantage over Mexico and Brazil in products where the labour component is greater than 35 per cent of the product cost.

There has also been substantial interest in the sector stocks due to the boom in the automobile industry. Both the two-wheeler and four wheeler vehicles have shown good growth in the current fiscal.

Several global automobile manufactures are outsourcing auto components from India and with several of these companies setting up their local base, analysts are upbeat on the auto components industry.

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