Raamdeo Agrawal, Director and Co-Founder, Motilal Oswal Financial Services, autos are in a terrific shape and valuations are not that demanding. “Most of them are below 15 PE multiple and growth looks to be very robust at least in fore quarters.”
Here is a verbatim transcript of Raamdeo Agrawal's comments on CNBC-TV18. Also see the accompanying video.
Q: You track the auto space. While numbers can’t be faulted it seems that we are now hitting a patch of margin pressure for all those companies. How would you approach the auto sector now?
A: We are into one of the most unprecedented boom kind of situation in every segment of auto – whether it is two-three-four wheelers and even commercial vehicles (CV) – now warming up. What you are seeing 5-6 times profitable – that is of course because of the base effect. But today if you go to the dealership, most of the popular products are out of stock or they are on waiting list. This morning I read in the newspaper that even the component guys are saying that they cannot supply as per demand.
When it is sellers market some pressure on the raw material side can always be tackled: One with volume growth and second by passing on some part to the customers. So I am not that much worried about the margin side of it right now.
What is difficult to figure out right now is when the stimulus is withdrawn, last year has been one of the largest stimulus period when excise was cut, liquidity was loose, so when they will withdraw the stimulus in this budget fiscal as well as monetary, what kind of impact will it have in the automotive growth in next four quarters.
That is a thing to understand in the current valuation. Otherwise as far as current share of industry is concerned, I think they are in a terrific shape and valuations are not that demanding. Most of them are below 15 PE multiple and growth looks to be very robust at least in fore quarters.
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