Tata Motors, Maruti Suzuki, Hero MotoCorp: Auto stocks that analysts prefer ahead of Nov sales data

Automobile stocks namely Tata Motors Ltd, Maruti Suzuki India Ltd, Mahindra & Mahindra Ltd, Eicher Motors Ltd, Hero MotoCorp Ltd, Ashok Leyland and Bajaj Auto Ltd will be in focus on Friday morning ahead of November auto sales data. Analysts noted that wholesales and retails would have benefitted from Diwali in November this year against October in 2022. They said the festive season ended on a strong note with 15-20 per cent YoY growth for two-wheelers and SUVs. While the growth tends to slow down post-festival season, two-wheeler demand was still better, they said.

Motilal Oswal Securities expects 5-7 per cent YoY sales growth for two-wheelers in the second half of November.

"Demand has improved in almost all the regions and dealers expect the momentum to continue, especially in the northern belts, as demand is further supported by the wedding season. For PVs, festive period growth was largely underpinned by healthy SUV demand and 25-30 per cent higher discounts YoY for lower-end models. However, volume growth remained flattish after the festive period due to continued weakness in the entry-level portfolio,” it said.

MHCV retails are expected to decline 4-6 per cent YoY. In tractors, Motilal Oswal expects retails to decline 20-22 per cent YoY, as the benefits of government-led subsidies are reducing coupled with a slowdown in overall demand.

Sharekhan said the broader trend in PV and commercial vehicle (CV) segment may continue, with the demand in the premium segment continuing to be strong while entry-level demand lagging. Sharekhan said it would be important is to watch if there is an improvement in volume mix than that of absolute volume growth, as the improvement in product mix would augur well for profitability. It likes auto stocks such as Ashok Leyland, Tata Motors, Bajaj Auto, Maruti Suzuki and Escorts.

Nomura India has maintained its Buy on M&M, Bajaj Auto, Ashok Leyland and Tata Motors.

Motilal Oswal said it prefer two-wheelers within the auto sector followed by commercial vehicles. "We are already witnessing a reversal in demand patterns, especially in the 2W segment, while we anticipate better growth potential compared to other segments over FY23-25E. On the other hand, we turn cautious on PV growth outlook due to slowdown in demand trend and high base. Tata Motors and Hero MotoCorp are our top OEM picks," it said.

Emkay Global said the two-wheeler festive performance may not be a one-off and that growth is likely to sustain amid a record-high fleet age driving replacement-led upturn over the next 2-3 years. TVS Motor is its top pick in automobile sector, on the back of its enduring margin improvement despite rising EV share.

It also likes Eicher Motors and Hero MotoCorp. "Relatively, momentum is expected to slow down in PVs amid emerging signs of softness. We are also cautious on CVs, as the best of the current upcycle may now be behind," it said.

ICICI Securities is not much positive on two-wheeler stocks following 10-15 per cent rally. The brokerage said it is time to be cautious in this space, with near-term wholesales likely to have peaked out in October itself. It is building in 10 per cent YoY growth in retails across Sep-November for both two-wheelers and PVs.

"We believe wholesales need to come down from November itself and may remain subdued till January, facilitating the destocking till then. For both PVs/2W players, inventory addition has been mainly driven by entry level/mass market models vs strong demand for premium models. We believe discounting levels would rise for entry models till December to reduce system stocks," it said.

 

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