4 Large-cap And 1 Mid-cap Auto Stock, To Buy As Suggested By Sharekhan

From the coverage of its auto stock pack, Sharekhan has come up with preferred picks from the space. These are as below:

OEM Stocks preferred by Sharekhan	Target price
Bajaj Auto	4800
Hero MotoCorp	3210
Tata Motors	516
M&M	1267
Escorts	1813

Q1Fy23 preview for Auto pack

Sharekhan goes on to mention in its auto pack report that "auto companies isexpected to perform moderately in Q1FY2023 with a 30.4% y-o-y revenue growth due to a low base in Q1FY2022, affected due to COVID-induced supply constraint previous year. During the quarter, recovery was seen in the two-wheeler (2W) and passenger vehicle (PVs) segments q-o-q, while commercial vehicles (CV) sales volumes declined q-o-q due to seasonality. Tractor and farm segment remains healthy, backed by positive rural sentiments and the government's thrust on agriculture.

Semiconductor situation better placed now

On a sequential basis, there has been a improvement in semiconductor availability, nonetheless the problem still continues to weigh on global production.

Outlook for auto companies

"We expect EBITDA margins to decline by 50 bps q-o-q for Sharekhan universe of automobile companies due to increase in commodity prices, partially offset by operating leverage benefits and price hikes. We stay positive on the sector, driven by expected volume recovery across segments. Sequentially, the revenues are expected to remain flat this quarter. Export continues to grow robust in the quarter, driven by aggressive product launches and recovery from COVID-19 pandemic in export destination markets. Domestic farm equipment egment continued to be at healthy levels, driven by positive rural sentiments. The three-wheeler and bus segments improved owing to opening of schools, other educational institutions, and corporates", says the report.

 

Valuation: Positive outlook regardless of near term headwinds such as inflation and chip issue

Robust demand, easing supply constraints and dropping commodity prices to provide relief to auto OEM and ancillary companies going forward. We stay Positive on the sector", iterates the brokerage house.

Also, the brokerage goes on to specify the risks to the sector as any of semiconductor chip situation again intensifying or geo-political threats.