6 Auto Stocks To Buy And Hold For Long Term

Brokerage firm, Emkay Global has recently come-up with research report on the auto sector. The brokerage is bullish on at least 6 stocks from the auto and auto ancillary space. "The overall revenue growth for companies (ex-Tata Motors) under coverage to remain flat YoY in Q3FY22, as volume growth was affected by temporary chip shortages in PVs and muted sentiments and a high base in 2-Wheelers/Tractors. In comparison, volume growth was strong for CV firms due to better freight availability/rates," brokerage has said.

Domestic commercial vehicles

On the domestic commercial vehicles segment, industry volumes grew slightly by nearly 3% YoY. Emkay expects strong revenue growth of 20-35% for OEMs such as Tata Motors-CV, Eicher Motors-Volvo Eicher and Ashok Leyland. The research firm expects robust double-digit revenue growth in CVs for the next two years, supported by improving macros, government thrust on infra spending and recovery in replacement demand.

Domestic passenger vehicles

The industry volumes declined by nearly 6% YoY, despite a large order-book, owing to chip shortages. Emkay expects revenue growth of 1% for Maruti Suzuki, 21% for M&M auto division (total revenue growth of 12% for M&M) and 67% for Tata Motors-Passenger Vehicles. Led by the pending order book and improving chip supplies, it expect revenues to grow strongly over the next two years.

6 stocks to buy from the auto space

Emkay Global Financial Services is positive on Tata Motors Stock (target price: Rs 550), Ashok Leyland Stock (target price: Rs 160), Maruti Suzuki stock (target price: Rs 8,750) and TVS Motor stock (target price: Rs 800). In ancillaries, they are positive on Motherson Sumi (target price: Rs 300) and Bharat Forge (target price: Rs 950). The key downside risks according to the brokerage would delay in economic recovery due to the third Covid-19 wave, further increase in commodity prices and adverse currency movement.

Buy Tata Motors stock, says Emkay Global

"Tata Motors is likely to register 2% YoY revenue growth, supported by a 45% jump in India PV/CV divisions. In comparison, JLR revenue (GBP) should decline by 13%, owing to chip shortages. EBITDA margins should contract by 700 bps, owing to lower margins in JLR and India divisions. Emkay expects strong revenue performance ahead for both JLR and India PV/CV divisions, supported by improving chip supplies and CV upcycle," the brokerage has said.

Domestic 2-Wheeler

Domestic 2-wheeler industry volumes declined by nearly 24% YoY, owing to moderation in sentiments as well as a high base last year. In comparison, exports saw nearly 1% YoY growth, despite the high base, driven by stable demand and steady forex rates in key markets. Emkay Global Financial Services expects 11% revenue growth for Eicher Motors-Royal Enfield, 2% for Bajaj Auto and 1% for TVS Motors, and a 21% fall for Hero MotoCorp. The momentum in exports is expected to be sustained. In comparison, domestic demand may be impacted in the near term by the increase in Covid cases. Emkay expects volume growth to turn positive from Q1FY23.

As far as the tractor industry is concerned volumes fell nearly 15% YoY. In terms of revenue, Emkay expects a 7% drop for Escorts and 2% for M&M's farm division. Led by a high base and lower government subsidy support, the volumes are expected to remain under pressure in the near-term.