Auto ancillary and consumer durable stocks are expected to benefit from the cyclical recovery that is taking place around the globe and in India at the moment. Global players like Motherson Sumi Systems are likely to do well as economic rebound takes place. Take a look at 2 stocks that Motilal Oswal has listed as buy with a potential upside of up to 32%.
Whirlpool of India: 32% Gains Possible
Broking firm, Motilal Oswal believes that the stock of Whirlpool of India can hit a target price of Rs 2,650, which means more than 32% gains from the current market price of Rs 2,006.
|Whirlpool of India current market price||Rs 2006|
|Target price||Rs 2650|
"While demand has quickly normalized for Consumer Electrical categories, offtake for Durables remained under pressure in 1QFY22. Whirlpool of India first quarter FY22 two-year revenue CAGR of -18% is better than Room AC players in our coverage universe (barring Lloyd's) and provides us confidence that the company continues to see market share gains rather than general apprehensions of a risk to market share," the brokerage has said.
Target price of Rs 2,650 on the stock
Unlike peers, Whirlpool of India hasn't resorted to aggressive cost cutting measures during COVID-19. As the economy recovers from the lockdowns, operating leverage should aid margin normalization by FY24E to 11.3%.
"The impact of commodity price inflation has been higher than our expectation, leading us to cut our FY22E/FY23E EPS by 10% each. Our target price on the stock stands at Rs 2,650 per share (earlier: Rs 2,900 per share) as we roll forward our valuation to Sep'23E EPS, but cut our target P/E to 50 times. We maintain our Buy rating on the stock of Whirlpool of India," the broking firm has said.
Motherson Sumi: Likely gains of 30% possible on the stock
|Motherson Sumi Systems current market price||Rs 219|
|Target price||Rs 285|
Not encouraging financial performance
According to broking firm Motilal Oswal Motherson Sumi 1QFY22 performance was impacted by exogenous factors in all its businesses (COVID in India and supply-side issues in overseas businesses), sharp copper price inflation, and non-recurring expenses at PKC.
"While the near-term outlook is murky due to supply chain uncertainties, Motherson Sumi is well-positioned to benefit from cyclical recovery in its key businesses as well as from the strong order book and improving efficiencies in SMRPBV," Motilal Oswal has said in its latest report, following the quarterly numbers of the company.
"We cut our FY22E EPS estimates by 8%/3%, factoring in headwinds from the semiconductor shortage as well as copper cost inflation. Maintain Buy, with target price of Rs 285 (Sep'23-based SOTP)," the brokerage has noted.
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