Axis Securities Lists 6 Top Stock Picks From Auto Space Ahead of Festive Season

Ahead of the festive season, the brokerage firm Axis Securities has picked up Hero Moto Corp, TVS, Bajaj Auto, Eicher, Maruti Suzuki and Ashok Leyland as its top stock picks.

Hero Moto Corp

"We interacted with the Hero's dealers in UP, Bihar, MP and Maharashtra which are the major markets for the company. Hero MotoCorp's dealer feedback was mixed with many dealers in the monsoon deficient region pointing towards weak FTYD sales YoY and calm market ahead of the festive season. The company's latest offers, Karizma XMR and HD-440X (25K bookings) have received good reception with booking rounds already done.

Many dealers pointed towards customers inquiring for these premium bikes but fell short of bookings until they get the test ride for the bikes. In the entry level bikes, HF-Deluxe, Super Splendor+ and latest version of Glamour Xtec are getting good reception. Destiny in the scooters segment is receiving good response while feedback is mixed for recently launched Zoom. Hero's FYTD24 market share in the motorcycle segment has dropped by 380bps to 44.5%, while in scooters it's marginally up by 11 bps YoY. Patchy monsoon could impact rural demand in the festive season ahead," said the brokerage firm in a note.

Bajaj Auto

"We interacted with Bajaj Auto 2W dealerships across India. The urban dealerships are building inventory levels specifically in the 125 cc segment and expect 10-15% YoY higher retail sales in this segment. Demand for entry level motorcycles across dealerships remains muted mainly because of the competition from low speed electric scooters, higher purchasing costs and finance costs. The dealerships informed that a festive discount exists across slow moving models in the 100 cc and 125 cc ranging between Rs 2 to 4k. Demand for the premium motorcycle segment (above Rs 1.70 Lc) is expected to remain marginally positive with no discounts in this segment. The dealerships also informed that deliveries for Triumph have started recently with supply lagging demand (Triumph has ~20K bookings)," said Axis Securities in a note.

TVS

"Overall dealer feedback from all the regions was positive, with dealers witnessing sales growth FYTD YoY. Barring few pockets of drought impacted regions of Maharashtra, dealers pointed towards sales growth and better festive season expectation ahead. Jupiter continues to be the highest selling scooter. iQube is also witnessing sales growth, however first time buyers are still preferring Jupiter over EV, and customers are preferring EV as their second vehicle.

Students are preferring iQube owing to its convenience and low maintenance cost. Raider is the highest selling Motorcycle, while Apache series dominates the premium sales. TVS gained market share in the motorcycle segment by 335bps YoY in FYTD24 to 10.4%, and in the scooters segment it managed to maintain its market share at 24.8% (up 87 bps YoY in FYTD24). Total 2W market share improved by 17bps YoY to 17.4% in FYTD24," said the brokerage.

Eicher

"We interacted with dealers of Royal Enfield in East, Central, and Northern India. The demand for recently launched Bullet 350 is high in Northern and Central states with relatively lower demand in the Eastern region of the country. The demand is higher in Tier-2 and Tier-3 cities than urban metropolitan areas. The delivery for Bullet 350 (Standard Black model most preferred by customers) has a waiting time of minimum 15 days and can go as high as 45 days; while models for other 350 cc categories are readily available.

Overall volumes are expected to get a boost with high demand in the 350 cc segment (>70% of sales mix) during the upcoming festive season. As per dealerships, competition from the launch of Triumph and Harley Davidson is not yet visible on the ground and clarity on the same will be available over next 6-12 months. Dealerships across the regions resonated the fact that 75-85% of the buyers buy accessories worth ~Rs 8k per vehicle. In FYTD24 RE's market share gained 133 bps YoY to 10.4% of the total Motorcycles market," stated the brokerage.

Maruti

"Our interaction with the dealers continues to gel with the trend of premiumisation in the PV segment. Premium products under the Nexa brand are doing much better than Arena, with higher inquiries and longer waiting periods with no discounts (except Ignis). The recently launched models have gained good traction. Jimny has stirred good demand, particularly in Tier 2 cities and northern India, and has a higher waiting period ranging from 4 to 6 months and, in the case of the 4x4 model, up to 8 months, prompting some to explore alternatives like the Thar.

Grand Vitara commands attention in Tier 1 cities, closely followed by the Fronx. Notably, the waiting period for the Fronx is relatively shorter, spanning 2 to 4 weeks, in contrast to the Grand Vitara, which has an extended waiting period of 6 to 8 months. For the Arena products, Tier 1 cities favor the Swift and Brezza, while Tier 2 cities nationwide exhibit a heightened demand for the Wagon R and Swift. Furthermore, the entry-level segment has witnessed a shift towards the Celerio following the launch of its CNG model. On discounts, Alto K10, Ignis and Espresso has highest discounts (Rs 35K), followed by Swift upto 30K and Baleno and Wagon R upto 25K," Axis Securities added.

Ashok Leyland

"We interacted with the Pan India dealers of Ashok Leyland, and the overall dealer network is positive on the CV cycle, with the MHCV demand outlook still holding up while the slowdown in the LCV segment persists. AL's growth strategy is to penetrate the traditionally weak North and East regions, grow in the Central region and defend its market leadership in the Southern region. AL had a lower market share of ~25% in North and Eastern regions and 30%+ in the Central region against the Southern region where it enjoyed 43% MS in FY23. Despite the seasonally weak monsoon period, the dealer feedback was positive on the MHCV sales outlook and the demand momentum is likely to increase in H2FY24. It will be led by increased government spending on road construction and infrastructure activities," said the brokerage firm.

Valuation

"Valuations are approaching one standard deviation above their long term averages. The softer commodity prices, demand pick up post Covid, price hikes and premiumisation led higher realizations along with broader market rally has driven the Auto index higher. Eicher Motors's valuation which used to command premium has recently come down post the launches from Bajaj and Hero in the 350cc+ space. While the valuation looks expensive for TVS, market is giving premium to TVS as it is emerging as leader in EV scooter in the listed space. Further potential to rerate is possible if they launch more EV scooters in the coming months. For Hero MotoCorp, the deficient monsoon (6% deficit so far across India) in the ley states of Uttar Pradesh, Bihar, Maharashtra could put pressure on its entry level motorcycle sales. For Bajaj, the valuations are not very attractive, and\ the signs of exports pick-up will be critical for the coming quarter." said Axis Securities in a note.

Disclaimer

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