The Indian stock markets had opened higher on Wednesday but closed lower due to losses led by auto stocks and financials. The Nifty Auto index closed 1.04% lower at 10463.45 points, dragged by Maruti Suzuki, M&M, and the Tube Investments of India.
5paisa has cut EPS estimates for the Auto OEM pack to factor in three risks
- It has cut auto industry volume estimates by 2% to 5% across segments to factor headwinds from a potential increase in vehicle prices to pass on the increase in input costs, higher cost of ownership and lower fleet profitability due to a potential increase in fuel prices and an impact on consumer spending due to lower economic growth.
- There has been a sharp rise in global commodity prices since Q3FY22, and this will impact the margins of OEMs.
- Several European OEMs have cut production in the past few weeks as there are supply-side disruptions that are not related to semiconductor chips, however, if the geopolitical conflict between Russia and Ukraine continues, there will be an impact. They have not considered this impact while cutting down the EPS. Some of the key players in the Indian automotive sector have made significant investments in European countries and this might affect them.
The brokerage has recommended the following 4 stocks with their respective target prices with a time horizon of one year (Report dated 22 March 2022)
Maruti Suzuki
They expect the passenger vehicle industry volumes to grow by 17% in FY23 and by 11% in FY24 and they expect that the company will mirror the growth. The company has multiple new models lined up for the next 12 to 18 months and they expect improvement in margins due to price hikes, a better mix and operating leverage.
- Recommendation: Buy
- Target Price: ₹ 9,500
- Current Market Price: ₹ 7,599.30
- Upside: 25.01%
Mahindra & Mahindra
They expect auto volumes to increase by 20% in FY23, driven by high growth in UVs and LCVs, but they expect tractor volumes to be flattish. They have trimmed their margin assumptions for Mahindra & Mahindra to factor in a rise in input costs.
- Recommendation: Buy
- Target Price: ₹ 1,035
- Current Market Price: ₹ 773.30
- Upside: 33.84%
Ashok Leyland
They forecast a volume growth of 35% in FY23, followed by a 20% growth in FY24 in the MHCV industry. They expect the company to outperform the industry during this period as it is regaining the market share that it had lost earlier. They expect that Ashok Leyland would benefit from the normalisation of bus sales.
- Recommendation: Buy
- Target Price: ₹ 150
- Current Market Price: ₹ 110.50
- Upside: 35.75%
Tata Motors
They forecast that domestic CV volumes will grow by 27% and PVs will grow by 26%. The forecast volume growth for Tata Motor’s business is to grow by 26%. They expect an impact on JLRs production in the near term due to the geopolitical scenario in Europe. An increase in operating costs and high fixed costs might impact near term margins for JLR.
- Recommendation: Buy
- Target Price: ₹ 580
- Current Market Price: ₹ 430.00
- Upside: 34.88%
Disclaimer
The views and investment tips expressed by 5paisa.com on tradebrains.in are their own and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
