Automobile sales during the month of March were a mixed bag. While dispatches of passenger vehicles (PV) grew in double-digits across the pack, commercial vehicle (CV) sales volume showed weakness along with a mixed performance from two-wheelers.
PV wholesales in March grew 11% on a year-on-year (YoY) basis driven by robust new launches in the SUV space. However, PV sales were slightly lower on a sequential basis due to slightly higher inventory levels with dealers.
Growth was decent across all three OEMs, led by Maruti Suzuki India. The largest PV manufacturer in the country witnessed strong growth across the premium segment while the entry-level segment remained muted.
Two-wheeler sales volume was flattish, wherein Bajaj Auto outpaced the segment growing 25% YoY. TVS Motor Company and Hero MotoCorp registered strong export growth driven by entry in new markets and channel filling.
Going forward analysts expect two-wheeler sales to recover amid rising demand with improving margins.
“We expect marriage-related demand will support some recovery in two-wheeler sales in coming months, especially in the rural market. Further, muted raw material prices will support margin expansion for the OEM in Q4 and Q1FY25 as OEMs have already announced price hikes from April 1, 2024,” said Kripashankar Maurya, AVP-Research (Auto) at Choice Broking.
From the current level, Maurya said he likes Hero MotoCorp and Eicher Motors and from auto ancillary space, he likes Lumax Industries, Gabriel India and Uno Minda.
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Choice Broking expects the company to improve its market share going forward due to its long-term strategic plan like showroom revamp, and upgradation of portfolio.
“Further we are positive on Hero MotoCorp due to a lower threat to EV transition (scooter ~8% of overall volume), scaling up the EV portfolio and entry into middleweight MC with HD-X440. We recommend ‘Add’ rating on the stock with a target price of ₹5,364 per share (19x of Sep-FY25E EPS),” said Maurya.
Increasing accessories revenue, expanding Royal Enfield’s reach in the international market, expanding presence in underpenetrated markets (Tier II & III cities), and a healthy launch pipeline across the bike category bode well for Eicher Motors to witness healthy growth over FY24-26, said Choice Broking analyst.
The brokerage firm ascribes an ‘Add’ rating on the stock with a target price of ₹4,268 per share.
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Choice Broking maintains a positive view on Lumax Industries led by its strong relationship with the majority of auto OEMs, healthy demand in the PV segment, increasing capacity in PV segment, localization of electronic facility levers for margin expansion and addition of new clients and models.
It has a target price of ₹2,746 per share on the stock.
The brokerage’s positive view on the stock is supported by a foray into high growth and power terrain technology-agnostic products like sunroof system; scaling up the technological capabilities; steady revenue visibility in the aftermarket; increasing share of business in PV segment; and winning new orders from E-2W OEM and expanding capacity.
It rates Gabriel India with an ‘Add’ rating and a TP of ₹395 per share, based on 23x on FY26E EPS.
UNO Minda is in a healthy growth trajectory led by various factors such as increasing kit value (comprising more EV products), premiumisation trend in personal mobility, expansion into high-value growth products, addition of new clients across the product category and margin improvement achieved through localization efforts for products such as sensors, controllers, BMS, and ADAS product portfolio.
However, going forward new capacity addition will compress margin in the short term as electronics products carry lower margins over casting products. Additionally, transitioning to a greater focus on premium and EV-related components, given the initial high import content will push back the margin efficiency effort, Maurya said.
He has an ‘Add’ rating on the stock with a target price of ₹763 per share, (38x of Sep-FY25E EPS).
Analysts at Antique Stock Broking have Maruti Suzuki, Ashok Leyland, and Hero Motocorp as their preferred picks in the OEM segment.
Maruti Suzuki reported a decent set of numbers driven by robust growth in the SUV segment. The entry-level segment continues to face headwinds and we expect recovery to be prolonged, Antique Stock Broking said.
The brokerage firm has a ‘Buy’ rating on the stock with a target price of ₹13,538 per share.
Ashok Leyland outperformed its peers in the MHCV and LCV segment. The brokerage has a ‘Buy’ call on the stock with a target price of ₹232 per share.
Hero MotoCorp reported decent volumes driven by steady demand and gradual recovery in the entry-level segment. Antique Stock Broking has a ‘Buy’ rating on the stock with a TP of ₹5,389 per share.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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