In the auto sector, where the problem of semiconductors has already reduced, demand has also improved due to better macro conditions. The demand-supply ratio is also expected to remain better going forward.
Auto index has underperformed compared to Nifty or Sensex in the last one year. The return of the index was around 6 percent in 1 year. At the same time, this year the index is in the red mark. The entire industry was affected due to COVID 19 and semiconductor chip shortage. Due to low production, there has been an impact on the sales and profits of the companies. But now the atmosphere is better than before. Where the problem of semiconductors has already reduced, demand has also improved due to better macro conditions. The demand-supply ratio is also expected to remain better going forward. In such a situation, some auto stocks may outperform further. After the quarterly results, brokerage houses are betting on Eicher Motors and Ashok Leyland.
Eicher Motors
Brokerage house ICICI Securities says that the EBITDA of Eicher Motors in Q3FY22 improved by 140bps to 22.3 percent on a quarterly basis. There has been a growth of 37 per cent in volumes on a quarterly basis. Gross margin has increased by 208bps on a quarterly basis even after the increase in commodity prices. Royal Enfield (RE) has increased the prices to balance the raw material cast inflation. The brokerage says that the company will benefit from new product launches in the future. The brokerage expects volumes to remain at 65k units/month in FY23E. Profits may increase during FY23-FY24E due to strong pricing power. The brokerage has given a target of Rs 3102 in the stock. In terms of current price of Rs 2690, there can be a gain of Rs 412 or 15 per cent per share. Brokerage house Emkay Global has also given a target of Rs 3100 while advising to invest in the stock.
Ashok Leyland
Brokerage house Emkay Global has given a target of Rs 160 while recommending investment in Ashok Leyland. In terms of current price of Rs 124, a return of 27 per cent can be given per share. Ashok Leyland’s EBITDA in Q3FY22 declined by 12 per cent year-on-year to Rs 220 crore. It’s better than expected. Revenue has grown 15 per cent year-on-year to Rs 5540 crore, which is 3 per cent weaker than the estimate. Industry volume is shifting towards CNG vehicles in ICV and LCV segment. The company has delayed the launch of the CNG truck, which has affected the volumes. The brokerage has reduced the PAT estimate for FY23/FY24 by 5 per cent. However, due to recovery in domestic CV volumes, there will be further gains. Demand has also improved, while there is a plan to launch new products aggressively. The company’s revenue CAGR for FY22-24E is likely to be 31 percent. At the same time, EBITDA margin may increase from 4.6% in FY22E to 10.4% in FY24E.
(Disclaimer: Stock investment advice is given by the brokerage house. These are not the personal views of The Financial Express. Markets are risky, so take expert opinion before investing.)
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