4 Auto Stocks To Buy As Economic Momentum Gathers Steam

The auto sector is on a path to recovery, following cases of Covid-19 that are fast receding. Over the short, medium and long-term, there could be a smart recovery, especially in stocks that cater to the commercial vehicles. Here are 4 stocks from Emkay Global that have the firm has suggested to buy with a higher price target on the stocks.

Tata Motors

One of the top stock picks from the auto space is Tata Motors as Emkay Global believes that the Automobile sector is underpinned by expectations of a strong cyclical upturn which is expected to last at least three years. The brokerage now has a target of Rs 400 on the stock of the auto giant, which is almost a 32% upside from the current levels.

"Tata Motors is likely to see a muted quarter, with revenue growth at +2% CAGR on forex translation gains and higher realizations in JLR. Wholesale volumes are weak in JLR (-10% CAGR) and standalone (-9% CAGR) divisions. We expect ramp-up in dispatches in both JLR and standalone divisions in H2," the brokerage firm has said.

Emkay Global also sees EBITDA margin to contract to 1% from 5.5% in Q1FY20. "Margin contraction of 570bps qoq is likely due to commodity inflation and lower scale," the brokerage has said.

 

Motherson Sumi Systems

Motherson is one of the top auto ancillary companies and has over 270 facilities operating in 41 countries across North America, South America, Europe, South Africa, Middle East, Asia Pacific and Australia.

In the auto ancillary space, Motherson Sumi Systems is one of the stocks that Emkay Global is the most bullish on. The firm has set a solid robust target of 38% upside from the current levels of Rs 238.

According to the brokerage revenues of Motherson Sumi Systems are estimated to witness growth at +5% CAGR. "On qoq basis, revenues should increase by 5% due to growth in automobile production in Europe and US PV segments. EBITDA margin should expand to 10.3% from 6.8% in Q1FY20. Margin is likely to expand marginally by 10bps qoq due to higher scale," the brokerage has said. The shares of Motherson Sumi were last trading at Rs 238 on the NSE.

 

Ashok Leyland

This is another stock with a "buy" rating from Emkay Global. The firm sees an upside possibility of 24% on the stock from the current levels.

According to the firm, revenue is likely to decline at -30% CAGR. "Volumes to decline at 33% CAGR, but realizations are likely to increase at +4% CAGR. Sequentially, realizations should decrease by 3% due to adverse mix (lower share of MHCVs). EBITDA margin should contract to -3.2% from 9.4% in Q1FY20. Margin contraction of 1,080bps qoq is likely due to lower scale," the brokerage has said.

Shares in Ashok Leyland were last seen trading at Rs 125.45 on the National Stock Exchange.

 

HeroMoto Corp

The brokerage has a 34% upside target on 2-wheeler major HeroMoto Corp. The brokerage believes that volumes are likely to recover sequentially in Q2, supported by pent-up demand and the marriage season. The firm has set a robust price target of Rs 3,870 on the stock.

According to Emkay Global revenues are expected to decline at -15% CAGR, led by lower volumes (-25% CAGR).

"Realizations are likely to increase at +14% CAGR. On qoq basis, realizations should increase by 3% on price hikes and better mix. EBITDA margin should contract to 11% from 14.4% in Q1FY20. On qoq basis, margin contraction of 290bps is likely due to commodity inflation and lower scale," the brokerage has said.

Shares of HeroMoto Corp were last seen trading at Rs 2,909 on the BSE.

 

Disclaimer

Views mentioned herein are taken from the brokerage report of Emkay Global Financial Services. Neither the author, nor the brokerage nor Greynium Information Technologies would be responsible for losses incurred based on the article. Please consult a professional advisor. Investing in stock markets is risky.