The Indian auto sector is set to see strong revival from H2 FY15. The key drivers for this growth include 1) improvement in consumer sentiment, 2) pause in diesel price hikes, 3) peaking out of interest rates, 4) pick up in industrial and infrastructure activity and finally 5) partial lifting of ban on mining activities. Internationally too, while developing economies in Africa, Middle East and rest of Asia continue to see strong growth, US is showing robust recovery and Europe is showing signs of stability.
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This scenario provides large business opportunities for Indian Auto Component manufacturers, which over the years have built a strong reputation with domestic OEMs and also globally. The large caps auto component players, on this premise, have seen a strong re-rating in the past few months leading to widening of valuation discount for small players. Here we pick three such stocks viz Banco Products, MM Forgings and Phoenix Lamps.
Recommendation Summary
| Company | CMP (Rs) | Target (Rs) | Upside | Exit trigger* (Rs) |
| Banco Products | 155 | 190 | 22.6% | 130 |
| MM Forgings | 447 | 540 | 20.8% | 375 |
| Phoenix Lamps | 133 | 160 | 20.3% | 110 |
Horizon: 1-3 months
* Exit trigger is the price level below which investor should exit position
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