Auto manufacturers see volume uptick; four stocks to buy as commercial, private vehicle sales grow

By: |
September 2, 2020 12:50 PM

With India getting back on the road with economic recovery, automobile manufacturers have been witnessing revival in demand in various segments

Manufacturers of cars, tractors and other vehicles were expected to see a spike in sales as the economy opened up after a strict lockdown.

With India getting back on the road with economic recovery, automobile manufacturers have been witnessing revival in demand in various segments. Some manufacturers have been seeing tractor sales while others have seen growth in sales of entry level cars. Manufacturers of cars, tractors and other vehicles were expected to see a spike in sales as the economy opened up owing to pent-up demand and even the shift towards personal mobility owing to the coronavirus pandemic. Analysing the sale volumes, brokerage and research firm Motilal Oswal has picked its top bets in the automobile industry.

Mahindra & Mahindra

Target price: Rs 723 ~ BUY

The automobile giant Mahindra & Mahindra (M&M) is a large player in the tractor manufacturing space. M&M’s tractor volumes surged 65% on-year basis to 24,500 units, beating street estimates. Coming to the personal vehicle space, M&M saw 1% growth from the previous year and 24% jump from the previous month. Volumes were driven by utility Vehicles. The positive momentum in the agricultural sector is expected to drive up demand for the company’s offering in the tractor business. Motilal Oswal expects an upside 19% for the stock. 

Maruti Suzuki

Target price: Rs 7,200 ~ Buy

Domestic sales grew 20% on-year with 95% growth in entry-level cars for Maruti Suzuki. Volumes grew 17%, in line with estimates. The mini-vehicle segment posted a strong growth of 95% on-year basis and the compact segment grew 14% for Maruti Suzuki. Domestic sales, when compared to the previous month, saw a 15% growth. Midsize cars volumes contracted. “We are estimating FY21E volumes to decline ~13.9% YoY, implying a residual growth of 9.7% or run-rate of ~148k units,” the brokerage said. For Maruti Suzuki shares to reach the target price, stocks will have to gain 4.2% from current levels.

Eicher Motors

Target price: 2,475 ~ Buy

Royal Enfield reported 5% on-year decline to 52,600 units which could be a signal of improved demand. “We estimate RE volumes to decline 10.4% in FY21E, implying residual growth of 17.4% or run-rate of 68k units. We are hopeful of a step-up in volumes, driven by the upcoming new platform launch in Sep-Oct’20,” the report said. The stock trades at 41.8x/25.9x FY21E/FY22E consolidated EPS.

Ashok Leyland

Target price: 71 ~ Buy

Ashok Leyland’s domestic commercial vehicle volumes dropped 30% from the previous year. M&HCV segment saw a 52% decline when compared to the same period last year. LCV volumes declined 4% YoY to 3,736 units. However, wholesale volumes were in line for the stock. Total volumes saw a 32% jump in volumes from the previous month. The stock, according to analysts at Motilal Oswal, has the potential upside of 4% from current levels.

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