The automobile sector is set for revival on the back of government’s focus on rural sector, fall in interest rates and lower inflation, according to Emkay Global Financial Services.
The brokerage house expects Eicher Motors, Ashok Leyland and Bajaj Auto to report highest revenue growth for the quarter ended March 2016. Highest EBITDA growth can be seen for Eicher Motors (75 per cent), Ashok Leyland (72 per cent), Hero MotoCorp (46 per cent) and Maruti Suzuki (45 per cent). It also sees benefit from tailwinds of lower commodity prices. Maruti Suzuki, however, is likely to see cut in consensus estimates on Yen appreciation.
According to Emkay, Bajaj Auto’s strong product mix in both domestic and export markets, coupled with rupee depreciation should aid net profit in the last quarter of FY16. Ashok Leyland registered 42 per cent quarter-on-quarter rise in volumes and higher defence sales in Q4 supporting bottomline. With 18 quarter-on-quarter Royal Enfield sales and 23 per cent quarter-on-quarter jump in VECV sales, Eicher Motors has strong operating leverage benefits for the quarter ended March 2016.
Emkay has accumulate rating on Mahindra & Mahindra (M&M) with target price of Rs 1,250. The company reported 17 per cent rise in total sales to 52,718 units in March as against 45,124 units sold in the same month last year. In domestic market, sales were up 19 per cent at 48,967 units last month compared with 41,105 units in March 2015, M&M said in a regulatory filing.
Exports, however, declined 7 per cent to 3,751 units last month as against 4,019 units in March last year.
“We expect 200 basis points quarter-on-quarter decline in M&M’s margin to 9.8 per cent driven by end of excise benefits from Haridwar plant, 8 per cent lower share of tractors in sales mix and seasonally higher other expenses,” Emkay said in a research report.
In the auto ancillaries space, Amara Raja Batteries and Motherson Sumi are growth stories.
Emkay has buy rating on Hero MotoCorp (target price: Rs 3,000), Maruti Suzuki (TP: Rs 4,900), Tata Motors (TP: Rs 465) in the automobile space. It has reduce rating on TVS motors with target price of Rs 275.
In the auto ancillaries space, Emkay has ‘accumulate’ rating on Amara Raja shares with target price of Rs 950 and ‘buy’ rating on Motherson Sumi with target price of Rs 339. It has hold ratings for Apollo Tyres and Exide Industries.