Stocks to Buy: Eicher Motors, Tata Motors, Mahindra & Mahindra, Ashok Leyland are Ambits picks in Automobiles sector. Ambit has initiated coverage on the nine OEMs (Original Equipment Manufacturers) which also include Bajaj Auto, Escorts Kubota, Hero MotoCorp, Maruti Suzuki India, in addition to Eicher Motors, Tata Motors, Mahindra & Mahindra, Ashok Leyland.
Ambit Research in the OEM's prefers tractors over two wheelers and light Commercial Vehicles. These nevertheless as per Ambit Research are better placed compared to Medium and Heavy Commercial Vehicles and passenger vehicles too.
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Tractors, two wheelers and light Commercial Vehicles as per Ambit Research are better placed as the demand in the segments is turning favorable,. Further the competitive intensity is favorable and Ambit feels that these segments have better earnings growth prospects. In addition lower Capex intensity is leading to better Free cash flow conversion.
Passenger Vehicles as per Ambit will continue to see K shaped recovery, with demand for SUV's remaining strong, But the SUVs segment will also have highest competitive and capex intensity.
Medium and Heavy Commercial Vehicles (MHCV) segment is at the crossroads with estimates of muted volume growth (a possible volume decline in FY27 is also estimated by Ambit. Pricing discipline ,till it lasts would drive earnings growth for the MHCVs
Ambit Research prefers OEMs with better segmental outlook, company-specific revenue & margin triggers, lower risk of disruptions, and reasonable valuations.
Eicher Motors- OEMs have seen a sharp rerating over the last 12 months driven by an improving demand outlook despite the increase in EV risk. As per Ambit Bajaj Auto is trading at 73% premium to 1 year forward average price to earnings, TVS Motor Company (42% premium) and Hero Motocorp (29% premium). While these stocks are already trading at a premium to Long Period Average multiples too, Eicher Motors is trading at a 12% discount to Long term average multiples due to slower growth and increasing competition and hence Eicher remains the pick of Ambit. Target price of Ambit for Eicher Motors share price stands at ₹5599.
Ashok Leyland- Ashok Leyland as per Ambit can leverage electrification to improve its positioning in Light Commercial Vehicles and would have 2 offerings by second half CY24. With the focus on profitability, pricing discipline is driving margins and the guidance suggests further scope for margin upgrades. With pricing discipline offsetting the uncertainty of demand, valuations of Ashok Leyland as per Ambit are reasonable at 11 times 1-year forward Enterprise Value to Ebitda and implied 10-year volume CAGR (compound annual Growth rate) at Current market price is 4.3%. Ambit's one year target price for Ashok Leyland stands at ₹266.
Mahindra & Mahindra- M&M is expected to fire on all three cylinders in FY25 as per Ambit. In SUVs, M&M has achieved market leadership with its 'SUV core brand' strategy. In Light Commercial Vehicles M&M leads the largest segment of 2-3.5 tons, which is gaining prominence. With the valuation discount largely corrected, returns as per Ambit will be driven by core Earnings per share growth (13% CAGR FY24-27), with success in EVs and ramp-up in farm machinery being key catalysts for stock rerating. Ambit has initiated coverage with BUY ratings and fair value of ₹3,284 ,
Tata Motors- The Medium and Heavy Commercial Vehicles business of Tata Motors is margin focused amid demand uncertainty, while the LCV business aims to revive market share driven by product actions including Electric Vehicles. For FY25 Ambit estimates Jaguar Land Rover (JLR) and Commercial Vehicles segments to see moderate growth, with India Passenger Vehicles benefiting from upcoming product launches. Rerating catalysts as per Ambit include the separate listing of Commercial Vehicles and Passenger Vehicles businesses, and JLR's successful luxury pivot. Ambit has initiated coverage on Tata Motors with a with Buy and a fair value for Tata Motors stock at ₹1,064 .'
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
