Auto Q3 Result Review: Expect positive momentum to sustain, says Nuvama; picks Hero Moto, M&M, Minda

The Q3FY24 auto demand momentum has been robust, according to domestic brokerage house Nuvama Institutional Equities' review report on the automotive sector. Revenue for the brokerages coverage (excluding Tata Motors Ltd.) increased by 17% YoY, and earnings before interest, taxes, depreciation, and amortisation (EBITDA) increased by 33% YoY, driven by improved scale/net pricing and a stable currency movement.

Also Read: Stocks to buy: NCC, Talbros Automotive among three fundamental stock picks by HDFC Securities

Ceat Ltd, Escorts Kubota Ltd, Tata Motors Ltd, Shriram Automall India Limited, Motherson Sumi Wiring India Ltd, and TVS Motor Co Ltd are among the firms the brokerage recognised as having strong EBITDA growth (40%-plus).

In comparison to low single digit growth for passenger cars and commercial vehicles, the brokerage stated that it expects 2W and tractor volumes to expand in the high single digits over FY24–26E.

Also Read: Nifty Auto outperforms with 10% YTD gains; Analysts careful on sector; Hero Moto, M&M, Maruti Suzuki among top picks

"Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!" Click here!

Nuvama is bullish on the auto space with top picks such as Escorts Kubota , Hero MotoCorp, Mahindra & Mahindra (M&M), Exide Industries and Minda Corporation. The brokerage has a negative opinion of Sona BLW Precision Forgings and Bharat Forge after accounting for moderation in the global outlook and high valuations.

Also Read: At record high! Nuvama Wealth jumps 24% in February; Citi sees further upside

The brokerage emphasised that, among the firms it covers, Hero MotoCorp, Tata Motors, Ceat, and Apollo Tyres Ltd. have seen increases in their FY24–25 EBITDA predictions. In the last year, the Nifty Auto Index (NAI) has surged by 55%, and in the last three years, it has more than doubled.

“We expect positive momentum to sustain, but remain selective. Our top picks and Model Automobiles Portfolio constitutes Escorts Kubota (30%), Hero MotoCorp (20%), Mahindra & Mahindra (20%), Minda Corporation (15%) and Exide Industries (15%). We have also downgraded Tata Motors to ‘HOLD’ (from ‘BUY’) as we expect FY25 volume growth to moderate in JLR and India CVs,” said Nuvama in its report. 

The brokerage further explained that, taking into account the usual trough-to-peak length of four–six years, the last 30-year historical tendency suggests that sales peaks across sectors might be as far away as two–four years.

"Over FY24–26E, we believe 2W/ tractor volumes are likely to expand at 6%/7% CAGR vis-a-vis 3% CAGR each for PVs and CVs. We expect 2Ws to do well on better rural demand, turnaround in the economy segment and continuing growth in executive/premium segments. 

Besides, tractors are likely to see a turnaround on favourable timing of festive season, diminishing El Nino and policy-push around elections," the brokerage said.

Also Read: Defence stocks to benefit from ₹84,560-cr contract from defence ministry, says Nuvama; picks BEL, HAL, Data Patterns

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.