Nomura Gives ‘Buy' On 4 Auto Stocks And See Upside Of Up To 32%

Global research firm Nomura is bullish on listed Indian auto stocks. The company sees a strong recovery in global demand between FY21 and FY22.

Nomura Gives ‘Buy' On 4 Auto Stocks And See Upside Of Up To 32%

Auto stocks Nomura is bullish on are listed in a tabular form with the price targets:

Auto scrip	Call	Target price	Last traded price as on June 29, 2021	Upside potential
Motherson Sumi	Buy	Rs. 301	Rs. 242.1	24%
Bharat Forge	Buy	Rs. 924	Rs. 754.55	23%
Apollo Tyres	Buy	Rs. 302	Rs. 228.9	32%
Bajaj Auto	Buy	Rs. 4847	Rs. 4126	17%

So this suggest that the global firm is bullish on the prospects of both the auto companies as well as auto ancillary companies' such as Motherson Sumi, Apollo tyres etc.

Further, the company is of the view that production for these auto majors shall reach a new high in calendar year 2022. Inventory days are also quite low at 23 days.

Individually for the different auto firms, Nomura is bullish given the following:

Motherson Sumi will benefit from strong production, electrification as well as premiumisation. Motherson Sumi or MSSL is a leading automotive component manufacturing entity for OEMs or original equipment manufacturers.

Bharat Forge: Nomura is of the view that the company shall benefit from its new light weight forging business for passenger vehicles and electric vehicles.

Bharat Auto: The company shall benefit from exports that are expected to be strong especially from oil and commodities rich companies. This is the country's leading 2-wheeler auto players with competitors such as Hero Motocorp

Apollo Tyres: Nomura see higher demand for tyres from the European Union region. The company is into manufacturing of both auto tyres as well as tubes. The company is the first to introduce radial tyres for the agricultural sector.

The management of Apollo Tyres at its recently held corporate day announced its business outlook as well as strategy. As part of the 'Vision FY2026', the company is aiming to realise consolidated revenue of $5 billion, Ebitda of more than 15%, ROCE of 12-15% on a pre-tax basis, and net debt/Ebitda less than 2 times. This the company aims to achieve by consolidating its positon in the home market, expanding product line for Europe and deepening its penetration into AMEA and US markets.

The company's focus on profitable growth is a positive. Also, its limited capex requirement until FY26 and and only one more round of capex in India, seen around 75% lower than the previous greenfield plant are other catalysts for improving ROCEs or return on capital employed, said the Nomura report.

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