Prabhudas Lilladher is a pre-eminent brokerage house in the Indian financial market, known for its robust database and innovative investment ideas. The firm offers a range of financial products and services, including equity, options, futures, commodities, currency options, and currency futures.
As per Prabhudas Lilladher’s report, In the fourth quarter of FY24, the two-wheeler (2W) industry experienced a robust 26% year-on-year expansion driven by sustained domestic demand and a rebound in international markets.
Concurrently, the passenger vehicle (PV) sector achieved a 13% YoY growth, primarily fueled by the consistent popularity of SUVs. Mahindra & Mahindra (MM) witnessed a noteworthy 120bps market share increase, contrasting with Maruti Suzuki’s relatively stable market share (-10bps YoY).
However, the tractor industry faced a significant downturn of approximately 20% YoY due to adverse weather conditions, notably erratic monsoons and depleted water reservoirs, which negatively impacted agricultural sentiment in central and southern regions, thus hampering overall sales.
Despite this, three-wheeler (3W) volume continued its upward trajectory, recording a 10% YoY growth, although the pace moderated somewhat due to the influence of a high base effect. Conversely, commercial vehicle (CV) volume declined by around 4% YoY, attributed to slower government project implementations preceding elections and a high base comparison. Prabhudas Lilladher reported.
In the fourth quarter of fiscal year 2024, the brokerage foresees robust growth in revenue and EBITDA at 15.5% and 31% YoY, respectively, within the automotive sector, primarily driven by Passenger Vehicles and 2W/3W companies maintaining strong volumes.
The brokerage reported that the automobile sector is expected to perform well due to benign commodity prices aiding margin expansion, with the commodity index down by 1% QoQ and ~11% YoY, continuing to support margins in Q4FY24 and 1QFY25.
Among key commodities, Steel prices declined by ~2.7% QoQ, followed by Pig Iron/Zinc/Lead prices down by ~2.4%/1.5%/1.6% QoQ respectively. Overall, prices of raw materialss have largely remained favorable, while strong volume growth for companies could result in better operating leverage, leading to an EBITDA margin expansion of 165 basis points YoY.
The brokerage has adjusted FY24-26E earnings in the range of -4% to +10% to account for quarterly volumes, benign commodity costs and forex, change in mix, better-than-expected demand for PVs, and lower-than-expected volumes in some segments.
OEM revenue is projected to rise by ~14% YoY (excluding JLR), led by 2Ws, 3Ws, and PV. Notably, Bajaj Auto/TVS (~25% YoY/21% YoY) and Maruti Suzuki India Ltd (~21% YoY) are expected to exhibit strong growth. Ashok Leyland Ltd. might experience a slight YoY revenue decline of ~2% in CVs but significant QoQ growth of ~22%.Brokerage reported.
The brokerage has initiated target prices for automobile stocks, specifically within the two-wheeler and passenger vehicle segments.
Prabhudas Lilladher has adjusted the target price for Maruti Suzuki India Ltd from ₹12,200 to ₹14,350, reflecting a 14 potential increase from the current market value. Analysts anticipate a 21.2% year-on-year and 16% quarter-on-quarter growth in Maruti Suzuki’s revenue, attributed to a 13.4% year-on-year and 16.5% quarter-on-quarter expansion in volume.
The proportion of utility Vehicles (UVs) in the sales mix rose from 26% in the fourth quarter of FY23 to 36.7% in the fourth quarter of FY24, likely supporting an EBITDA margin increase of 223 basis points year-on-year and 95 basis points quarter-on-quarter. As a result, Profit After Tax (PAT) could witness a 48% year-on-year and 24.1% quarter-on-quarter growth.
The brokerage has set a target of ₹2,306 for Mahindra & Mahindra Ltd, representing an 11% upside from the current market price.
They anticipate an 8.1% year-on-year growth in revenue, primarily fueled by a 13.8% volume increase in the Automotive division.Despite the expected decline in Tractor volume, it is projected to offset the benefit of reduced raw material costs, resulting in a relatively stable EBITDA margin. However, the brokerage foresees a 4.3% year-on-year decline in the company’s net profit after tax (PAT).
The brokerage has initiated the target on Tata Motor for a price of ₹1,080 with an upside of 7 percent from the current market price.
The brokerage anticipates Tata Motors’ revenue to increase by 17.3% year over year (YoY), propelled by robust volume growth across its segments. Furthermore, they expect the company to experience an expansion in EBITDA margin by 183 basis points YoY, driven by a higher mix of utility vehicles and consistent performance in JLR. Additionally, the brokerage foresees a 9.7% YoY growth in the company’s profit after tax (PAT).
Prabhudas Lilladher has initiated the target price for Hero MotoCorp Ltd to ₹5,070, reflecting a 12% potential increase from the current market value.
Analysts anticipate a 12.6% year-on-year revenue growth driven by a 9.6% volume increase and higher average selling prices. With an enhanced product mix and stable raw material costs, the company is expected to expand its EBITDA margin by 114 basis points year-on-year, leading to a projected 20.2% year-on-year growth in profit after tax (PAT).
Brokerage has initiated a target price on stock for a price of ₹210, reflecting a potential 17% increase from the current market price. The brokerage forecasts a 2.4% year-on-year decline in revenue due to a 5.7% decrease in volume, attributed to a high base and election-related slowdown.
Despite the volume decline, cost-cutting measures and lower raw material costs, brokerage anticipated to drive a 227 basis points year-on-year expansion in EBITDA margin. Profit after tax is expected to grow by 27.2% year-on-year.
The brokerage maintains a ‘HOLD’ rating on TVS Motor Company Ltd with a target price of ₹ 1,995. They anticipate a revenue expansion of 21.5% YoY driven by a volume growth of 22.4% YoY.
The expected factors contributing to this growth include product enhancements, export volumes surpassing domestic growth, and favorable commodity prices, which are expected to lead to a 98bps YoY increase in EBITDA margin. Additionally, the brokerage predicts a PAT growth of 31.3% YoY.
Written by Omkar Chitnis
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