Tata Motors, Maruti, Hero Moto, M&M: Auto shares that analysts prefer ahead of Oct sales data

Automobile stocks such as Tata Motors Ltd, Marui Suzuki Ltd, Hero MotoCorp Ltd and Mahindra & Mahindra Ltd (M&M) will be focus in Wednesday's trade, ahead of its release of October sales data. Brokerages said retail sales for the month would likely be hit by the inauspicious Shradh period that ran from September 29 to October 14. This was against last year's September 10-25. Overall, festive sales were strong for two-wheelers but weak for passenger vehicles, they said.

"If we look at the Navratri period starting 15th October, retails are likely to be flattish for cars (below our expectations), but in healthy double-digits for two-wheeler (2W) makers (ahead of our expectations). SUV growth for PVs and above 125cc segment for 2Ws are likely to have performed better, as per dealer surveys," Nomura India said.

The foreign brokerage said its dealer survey indicates a weakness in tractor sales during the Navratri festive season. Sales in the second phase of the festival from November 10 will be a key monitorable, it said. Net-net, it sees passenger vehicle (PV) wholesales to grow to 3,81,000 units (up 13 per cent YoY). It sees medium and heavy commercial vehicles (MHCVs) wholesales rising 19 per cent, two-wheeler wholesales rising 16 per cent but declining 10 per cent for tractor segment.

"October 2W wholesales are likely to have grown in double digits YoY due to strong festival demand and a favourable base (festivals coming later in the year). Similarly, PV and CV volumes are likely to have grown in double digits. Tractors are likely to have fallen by single digits due to subdued demand. We are positive regarding the auto sector. Our preferred OEM picks: Hero MotoCorp, Bajaj Auto, TVS Motors, Tata Motor," Anand Rathi said in a note.

In our coverage, we are bearish on 2Ws, as we expect structurally low growth, muted festive season, EV disruption and increasing competition to hurt the sector’s profitability. We prefer PV and CV OEMs (MSIL, MM, AL) and global auto-focused names (TTMT, MOTHERSO), as we think these have better prospects for sales growth and margin in the upcycle, especially with disciplined pricing trends. We raise our TPs for a few stocks, as we roll forward our valuation base to September 2024, factor in recent demand trends and incorporate valuation of HMCL’s financing arm. MSIL remains our top pick.

Among companies, Motilal Oswal expects PV dispatches for Maruti Suzuki and M&M (including pickups) and Tata Motors PV to grow 17 per cent, 23 per cent and 8 per cent YoY, respectively. In the CV segment, it sees dispatches for Tata Motor CV and Ashok Leyland to grow 8 per cent and 17 per cent, respectively. In two-wheelers, it see dispatches for Hero MotoCorp, TVS Motor, Royal Enfield (Eicher Motors Ltd) and Bajaj Auto Ltd to grow 23 per cent, 19 per cent, 5 per cent and 2 per cent YoY.

"We prefer 2Ws within the sector followed by CVs. We are already witnessing a reversal in demand patterns especially in the 2W segment, wherein, we anticipate better growth potential compared to other segments over FY23-25E. On the other hand, we turn cautious on PV growth outlook due to a slowdown in demand trend and high base. Tata Motors and Hero MotoCorp are our top OEM picks," it said.

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