Q1FY24 results season was positive for the auto sector as OEMs showed robust revenue, EBITDA and PAT growth, led by improved realizations and stable costs. Meanwhile, auto ancillaries also showed decent growth.
In FY23, PV, 2W and CV segments grew by 27%, 17%, and 34% YoYm respectively, led by healthy demand and the low base of the previous year. According to analysts at Axis Securities, demand momentum is expected to continue but at a slower growth rate in FY24 due to the higher base of FY23.
Axis Securities remains positive in the auto sector as demand drivers are intact. However, due to the recent rally in stocks, valuations are no longer attractive. Against this backdrop, the brokerage recommended a “Buy on Dips” strategy for quality auto stocks.
Analysts at Axis Securities remain selective and for OEMs under their coverage, their top picks are TVS motors in the 2W segment, Maruti in the PV segment, and Ashok Leyland in the CV space," it said.
Short term: Strong order book in PV, Longish CY cycle, 2W Gradually recovering – Shift towards e-2Ws, Premium scooters and bikes, Premiumisation across segments to drive ASPs higher, Stable RM input costs
Long term: Selective approach in the long term, EV/Alternative fuel leaders to be rewarded, Slashing of FAME subsidy likely to consolidate the 2W & EV market, Demand momentum to moderate on higher base
Axis Securities has Maruti Suzuki as one of its top auto stock picks with a target price of Rs 10,800 per share. "Softening commodities (metals), new launches in the SUV space, and upgradation of the existing portfolio will drive higher margins going forward," the brokerage said.
Axis Securities has Ashok Leyland as one of its top auto stock picks with a target price of Rs 210 per share. "We expect EBITDA margins to improve moving forward due to Slightly higher ASP and lower discounts leading to higher net realizations, Higher GMs on softening commodity costs and value engineering, Favourable product mix skewed towards higher tonnage vehicles; Operating leverage driven by absolute volume growth; Growth in International business, Defence, Power Solutions, and Aftermarket which are higher-margin businesses," it said.
Axis Securities has TVS Motor as one of its top auto stock picks with a target price of Rs 1,450 per share. "With a strong focus on the EV product pipeline ahead of incumbent 2W OEMs, product premiumisation, and strong execution capabilities, we believe TVSL is well-placed among listed players to gain market share in the coming years," it said.
Axis Securities has CIE Automotive as one of its top auto stock picks with a target price of Rs 585 per share. "Sluggish short-term but tailwinds are likely to emerge in the mid-term. Post the hive-off of the German trucking business, the EBITDA margins continue to be positively impacted by lower energy prices, input cost pass-through and internal efficiencies," it said.
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