Axis Securities has maintained a long-term positive outlook on the auto sector, citing macroeconomic drivers. For FY25, it expects volumes for two-wheeler makers (2Ws) to grow in early double digits, though overall volumes are expected to remain below pre-Covid levels. For passenger vehicle (PV) and commercial vehicle (CV) segments, it expects mid single digits growth, while the brokerage expects the tractor segment is expected to log flattish to low single digit volume growth.
"Due to the recent rally in some stocks, valuations are not very attractive. Against this backdrop, we recommend a “Buy on Dips” strategy for quality stocks," it said. For now, it has 'Buy' rating auto stocks namely TVS Motor Company Ltd and Hero MotoCorp Ltd, while it prefers Minda Corporation, Sansera Engineering Ltd and CIE Automotive among auto ancillary stocks.
TVS Motor Company | Buy | Target price: Rs 2,900 Axis Securities suggested a Buy target on TVS Motor with a target of Rs 2,900. In the June quarter, TVS Motor achieved 15 per cent YoY and 4 per cent QoQ growth in the domestic market. With expectations of a normal monsoon, the government's commitment to infrastructure and the rural economy, overall industry volumes are anticipated to grow in the high single digits in FY25 (excluding HMSI on a low base of FY24), with TVS expected to outperform the industry average, Axis Securities said. In exports, demand for TVS is expected to rise from the Middle East, LATAM, and a recovering African market, it added.
Hero MotoCorp | Buy | Target price: Rs 6,015 Axis Securities suggested a 'Buy' call on Hero MotoCorp with a target of Rs 6,015. Hero's 125 cc portfolio (Xtreme and refreshed Glamour & Splendor) has seen a recovery in market share, increasing sequentially from 13 per cent in Q1 to 20 per cent. It is expected that the company will grow in line with the industry, marking a departure from its previous trend of lagging behind, Axis Securities said. As the execution strategy unfolds in FY25, a conservative estimate of 6.5 per cent CAGR volume growth over FY24-27E is projected for Hero, it said.
CIE Automotive | Buy | Target price: Rs 650 Axis Securities said an improvement across segments and key customers (M&M, Bajaj Auto, Maruti Suzuki India) is expected in H2CY24. The company is projected to report revenue growth of 10 per cent CAGR over CY24-26E in its Indian operations.
"In H1CY24, the EU car market declined 5 per cent, and the US off-road market decreased by 30 per cent YoY. We expect the near-term to remain muted, with a gradual recovery anticipated in CY25. A 4.5 per cent CAGR revenue growth is estimated for the EU business over CY24-26E.
"In H1CY24, CIE has received new orders worth Rs 500 crore in India (30 per cent for EVs) and Rs 220 crore in the EU (55 per cent for EVs). The EV transition in Europe is expected to be slower than initially anticipated due to the elimination of subsidies," Axis Securities said.
Minda Corporation | Buy | Target price: Rs 575 Axis Securities suggested a Buy target on Minda Corporation with a target of Rs 575. In the June quarter, Minda secured lifetime high orders worth approximately Rs 2,100 crore, with EVs constituting 25-30 per cent of the orders won. As of June 2024, total new lifetime orders stood at Rs 12,000 crore, spanning product segments such as vehicle access, driver information systems, die casting parts, electrical distribution systems, and new EV technologies.
"We expect Ebitda margins to sustain between 11 per cent and 12 per cent in FY25/26E, supported by a richer product mix led by premium 2Ws (both ICE and EV), increased wallet share among 4W/CV OEMs, gradual recovery in exports, improved operating efficiencies, streamlined fixed costs, and component localization initiatives," it said.
Sansera Engineering |Buy | Target price: Rs 1,580 Sansera boasts a healthy order book with annual peak revenues of Rs 1,685 crore, with 49 per cent of orders coming from the non-auto and auto tech agnostic & EV space (and 63 epr cent being international). Although the quarter saw a 20 per cent decline in the Swedish subsidiary, the management confirmed business wins on two engine platforms from Volvo. "The company has also added Saab and Triumph Aerospace to its customer list and is receiving heightened interest in ultra-high precision components used in semiconductor machining/manufacturing," Axis Securities said. The brokerage is conservatively expecting the company to deliver 17-18 per cent margins over FY25/26. It expects Sansera to post Ebitda growth of 20 per cent and PAT growth of 23 per cent compounded annually over FY24-26.