Lockdown, plants shutdown hit car sales hard, this brokerage firm sees up to 64% upside on auto stocks

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Published: April 2, 2020 5:38:55 PM

Research and brokerage firm Motilal Oswal is bullish on auto stocks with an upside up to 64 per cent. According to the estimates collated by SIAM last week, the auto industry will suffer a production loss of an estimated Rs 2,300 crore per day due to the shutdown.

Auto stocks, maruti suzukiMaruti Suzuki aims to rapidly ramp up the production of ventilators and reach a volume of 10,000 units per month. Image: Reuters

The car sales in India witnessed a steep fall in March, as automakers such as Maruti Suzuki, Mahindra and Mahindra and Tata Motors among others reported a decline, aided by economic slowdown and shutdown of production plants amid nationwide lockdown due to coronavirus pandemic. Last week, India entered into a 21-day lockdown to prevent the spread of COVID-19, which forced car markers to shut down their production plants as a preventive measure. Despite these, research and brokerage firm Motilal Oswal is bullish on auto stocks with an upside up to 64 per cent. According to the estimates collated by Society of Indian Automobile Manufacturers (SIAM) last week, the auto industry will suffer a production loss of an estimated Rs 2,300 crore per day due to the shutdown. Therefore, the 21-day nationwide lockdown will translate into a revenue loss of Rs 48,300 crore.

Maruti Suzuki (MSIL)- Maruti Suzuki posted a 47 per cent on-year decline in sales. A total of 83,792 units were sold in March 2020. In a separate news, the company also announced an arrangement with AgVa Healthcare, an existing manufacturer of ventilators, to produce ventilators, masks, and other protective equipment. Company aims to rapidly ramp up the production of ventilators and reach a volume of 10,000 units per month. Brokerage firm Motilal Oswal has given a buy rating to the stock with a target price of Rs 5,900, an upside of 39 per cent. Maruti Suzuki share price ended at Rs 4,243.60 on Wednesday. 

Mahindra and Mahindra (M&M)- Passenger vehicle sales for popular sport-utility vehicles Mahindra and Mahindra registered a 87.8 per cent on-year drop. The company also witnessed a fall in commercial vehicle sales by 90 per cent as 2,325 units were sold in March 2020 compared to 24,423 units in March 2019. “We are lowering our EPS estimates for FY21/FY22 by 18 per cent each to factor in for the impact of coronavirus on demand,” Motilal oswal said in a research note with an upside of 56 per cent. the brokerage has recommended to buy this stock with a target price of Rs 426. Mahindra and Mahindra share price settled at Rs 273 apiece in Wednesday’s trade.

Tata Motors- Tata Motors recorded a massive 84 per cent on-year drop as it sold a total of 11,012 units in March 2020. The company sold a total of 68,727 units in the same month of last year. The company’s domestic CV sales declined by 90 per cent in March, to 5,336 units from 50,917 units a year ago. While the domestic sales for the financial year 2019-20 ended March 31 fell 34 per cent to 310,855 units from 468,692 the previous year. The brokerage firm gave it a buy rating by saying the “We are lowering our EPS estimates for FY21 and FY22 by 94% and 66%, respectively to factor in for the impact of coronavirus on demand in India and JLR.” The brokerage is bullish on this stock with 64 per cent upside. The target price mentioned by the brokerage firm is Rs 111, while the Tata Motors share price finished at Rs 68 in the previous session. 

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