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4 Top Picks From The Auto Sector By Angel Broking For June 2021
The broking firm Angel Broking in its research report has listed out top picks for June 2021. The list has been segregated sector wise i.e. banking, auto, chemicals, pharma and others.
The calls or stock recommendation by the broking major have been given considering the following:
1. June to witness economic reopening post Covid second wave peak in May.
2. Pick in Covid 19 vaccination pace in the country shall be positive for the markets
3. GDP and PMI numbers came in on expected lines
4. Imminent reopening and EPS growth outlook has shrugged off negative pressures
' Buy' Recommendations by Angel Broking from the Auto pack
| Company | CMP | TP |
|---|---|---|
| Ashok Leyland | Rs. 128 | Rs. 145 |
| Escorts | Rs. 1219 | Rs. 1573 |
| GNA Axles | Rs. 446 | Rs. 550 |
| NRB Bearings | Rs. 134 | Rs. 150 |
1. NRB Bearings:
For the quarter ended March of FY21, the company posted good results with revenue inching 37% YoY, while EBITDA scaled even more strongly by 203% YoY.
"With the auto industry likely to rebound by H2FY22 and exports doing well for the company, we expect NRB to do well going forward. NRB is faring well in terms of improving its wallet share in exports", said the report.
The company's key financials for FY2022E are as following:
• PAT: Rs. 76 crore
• EPS: 7.8
• RoE: 14%
• P/E: 17.3x
The company is the leading supplier of bearings to auto manufacturing companies. The company caters to 2-wheelers, 3-wheelers, PV, CV and tractor OEMs.
2. Escorts:
"Considering record food-grain procurement by government agencies as well as expectation of good Kharif crop in 2021, we expect the tractor industry will continue to outperform the larger automobile space in FY22 with Escorts being a key beneficiary", said the report.
Escorts in the recent past has also entered into a strategic partnership with Kubota Corporation of Japan (one of the global leaders in farm machinery and implements), which provides further visibility of growth for the company, going forward, added the report.
The company's key financials for FY2022E are as following:
• PAT: Rs. 874.2 crore
• EPS: Rs. 86.4
• RoE: 14.6%
• P/E: 14.1x
Escort is the leading tractor player in the country with its brand of tractors doing good particularly in the northern and eastern belt of the country.
3. GNA Axles:
GNA is expected to be one of the biggest beneficiaries of strong growth outlook for truck sales in US and Europe markets which are witnessing strong recovery in demand. US which accounts for almost 40% of the company's revenues has been registering strong class 8 truck sales, said the report.
The foray into the SUV axle segment would provide the company with new growth opportunities while the recovery in the domestic CV cycle also bodes well for the company. At current level the stock is trading at a P/E multiple of 11.5x FY23E EPS estimate of Rs. 39.
Key financial metrics:
For Fy2021E
• PAT- Rs. 77 crore
• EPS- Rs. 35.7
• RoE- 13.7%
• P/E- 12.5%
The company is into supplying rear axles to the auto sector. Primarily catering to the CV segment, the revival in CV cycle shall bode well for the company and it is seen to be the biggest beneficiary from it.
4. Ashok Leyland Ltd(ALL):
The company is one of the leading player in India CV industry with a 32% market share in the MHCV segment. The company also has a strong presence in the fast growing LCV segment. Demand for MHCV was adversely impacted post peaking out due to multiple factors including changes in axel norms, increase in prices due to implementation of BS 6 norms followed by sharp drop in demand due the ongoing Covid-19 crisis, said the report.
"While demand for the LCV segment has been growing smartly post the pandemic, demand for the MHCV segment has also started to recover over the past few months before the 2 nd lockdown while demand for buses are expected to remain muted due to greater preference for personal transportation".
Considering the above, Angel Broking is of the view that Ashok Leyland is ideally placed to capitalize on the growth revival in the CV segment. Also, the company is seen to be the biggest beneficiary of the centre's voluntary scrappage policy.
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