Auto OEMs vs ancillaries: BNP Paribas analyst Kumar Rakesh explains how to play the EV theme

economictimes.indiatimes.com:

Listed major auto OEMs in India have varied businesses that makes it difficult to play the EV theme through them, says Kumar Rakesh, IT & Auto Analyst, BNP Paribas.

«However, some of the auto component manufacturers have started building capabilities in the EV value chain and could be a key beneficiary of increased localisation of EV components in India,» he says in an interview with ETMarkets.com. Edited excerpts:

Now that you have the December sales numbers, what is the broad outlook on the earnings of auto companies in Q3? Where do you think the good news will come from?
Kumar Rakesh: On Q3 earnings, our sense is that 2W and 3W companies will outperform the PV OEMs and can see earnings growth of 25-30%, while PV OEMs can see a potential earnings growth of low double digits. This was on back of the strong festive demand for both PVs and 2Ws, albeit a higher base of PVs while a low base effect for 2Ws. Tractors were weak in Q3 and could see earnings degrowth, while CVs could see low-mid single digit earnings growth. While we see all the festive cheers already factored in the earnings expectation and the recent share price rally, we see a further recovery, especially in the rural segment can bring in some good news, especially for 2W players like HeroMotoCorp. However, more pain from the entry segment PV sales and increasing discounts can be potential negatives to watch out for.

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