The kind of fall in commodity prices in the recent past, the auto sector is expected to get the benefit of it in the coming days.
Automobile Stocks: The slowdown in commodity prices is a sign of relief for the auto sector, which has been a persistent underperformer. The kind of decline in commodity prices in the recent past, the auto sector is expected to get the benefit of it in the coming days. This will improve the earnings of the companies. Brokerage house Emkay Global says that the revenue of companies may remain flat in the first ie June quarter of FY 2023. However, the fallout of the softening of the commodity will start meeting from the second quarter. Cyclic upturn is expected in the next 3 years. In such a situation, some companies with strong fundamentals can outperform.
Earning can be better
Brokerage house Emkay Global says that commodity prices have seen a softening in the recent past. This is expected to support margins from the second quarter of FY2023. The brokerage house has upgraded the EBITDA estimates for FY23E/24E by 15 per cent and 8 per cent in large and midcap auto segments, keeping in view the declining commodity prices and strong volume outlook. The brokerage house has cut Tata Motors’ EBITDA estimates by 1 per cent and 3 per cent for FY23E/24E. At the same time, the EBITDA estimate of Bajaj Auto has been cut by 5 percent and 7 percent.
View positive on the sector
Brokerage house Emkay Global has kept its view on the sector positive. The brokerage says that cyclic upturn is expected in the next 3 years. The brokerage says that we expect the revenue of companies covered by coverage to remain flat on a quarterly basis. However, last year there was a low base due to the Kovid wave, which is not right to compare on an annual basis. The 2W and tractor segment is expected to witness quarterly growth, while the commercial vehicle segment may see a decline due to seasonality.
Strong order book in PV segment
Talking about the domestic passenger vehicles segment, the volume has declined by 1 percent. Although the orderbook is strong. Talking about individual companies, the revenue in Mahindra & Mahindra’s auto division can grow by 2 percent on a quarterly basis. While the overall revenue growth of the company is expected to be 14 percent. The revenue growth of the PV segment of Tata Motors is expected to be 7 percent. While Maruti Suzuki may drop by 1 percent. While talking about the commercial division, the revenue of Eicher Motors, Tata Motors and Ashok Leyland may decline by 8 percent, 18 percent and 18 percent.
What’s the advice on the stock
Maruti Suzuki
Rating: Buy
Target: Rs 9,650
Tata Motors
Rating: Buy
Target: Rs 530
Escorts
Rating: Buy
Target: Rs 2140
Ashok Leyland
Rating: Buy
Target: Rs 178
Mahindra & Mahindra
Rating: Buy
Target: Rs 1390
Bajaj Auto
Rating: Hold
Target: Rs 4100
Hero Motocorp
Rating: Buy
Target: Rs 3400
Eicher Motors
Rating: Buy
Target: Rs 3340
(Disclaimer: Stock investment advice is given by the brokerage house. These are not the personal views of The Financial Express. Markets are risky, so take expert opinion before investing.)
