I worked in auto component industry and was involved in pricing discussions. Hence my further comments are coming from my past experience. Auto component suppliers have very less pricing power with their OEM customers. OEMs tend to have long term pricing agreements (with annual price downs built in sometimes) which forces auto component players to absorb most of the cost increases. Any new competitor brings in further pressure on pricing.
In short, only highly efficient low cost suppliers makes money in auto component market on OEM side. Most of them make money from aftermarket business (if the product has after market business). Hence suppliers of tyres, batteries, brakes, wipers and shock absorbers are more attractive due to their aftermarket business (provided they have good brand image) Very few suppliers like Bosch can command premium due to technology.
Hence any auto ancilliary stock could be short/medium term play on operating leverage (assuming they have spare capacity) but will struggle to be long term “wealth generators” unless they have huge after market business.
Also I think LED is becoming commodity, considering the fact that all players that has anything to do with electrical supplies, are entering into LED production eg. Eveready, Phillips,Bajaj,Syska,Anchor, Havells etc So I am not sure how much margins can be made in this business.
Disc – Not invested
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