Three auto component makers upgraded by Kotak Institutional on valuation comfort

Kotak expects Varroc Engineering and CIE Automotive’s India business to marginally outperform the industry driven by the premiumisation trend in two-wheeler and passenger vehicle segments; and an increase in average selling prices driven by an increase in the mix of electric motors (Varroc Engineering), partly offset by underperformance of business segments exposed to engine-related segment.

Uno Minda, Kotak said, plans to invest more than ₹2,000 crore as capex over the coming years to ramp up the production capacities of alloy wheels, EV components and lighting businesses, which will drive growth for the company.

CIE Automotive India continues to invest a capex of 5-6% of sales to expand the production capacities in forgings, casting, stampings and magnets.

In a note, the domestic broking firm said that steady demand trends in the two-wheeler segment and growing premiumisation trend coupled with the electric vehicle (EV) shift augur well for the India business of these companies.

"We expect domestic two-wheeler industry volumes to grow by 8-9% CAGR over FY24-26E driven by a recovery in rural replacement segment and continued outperformance in premium motorcycle and electric scooters," it said.

Volume growth in the export two-wheeler segment is muted in FY24E; however, Kotak expects a gradual recovery in volumes partly on account of a lower base. Domestic PV segment demand is expected to moderate in FY25E on a YoY basis; however, the SUV segment is expected to outperform the entry-level segment, which augurs well for the overall content growth, it said in a note.

The BSE Auto index gained 0.28% more on Monday, compared to a 0.069% gain in equity benchmark index Sensex.