8 Buy & Hold Stocks From Auto Space To Watch Now For Long Term: ICICI Securities

ICICI Securities, a domestic brokerage and research organisation, researched into the auto sector and identified eight stocks to buy and hold for the long term. As per the brokerage "The automobile sector is an important constituent of domestic manufacturing economy; however, it has been facing a lot of unsettling bumps on the road over the past few years. These included revised axle load norms for the CV space, mandatory long term third party insurance at the time of new vehicle purchase, change in emission norms from BS-IV to BS-VI, Covid-19 led volume disruptions, spike in fuel prices, shortages of semiconductor chip and recent commodity inflation led increase in vehicle prices. This has led to high double digit increase in vehicle prices with consequent domestic sales volume declining in excess of ~30% from the past peak attained in FY19."

"As things were settling down, with 4-W and CV space depicting clear signs of revival, the industry is now witnessing geopolitical crises leading to further rise in commodity prices, re-surfaced chip availability concerns. However, the situation is quiet fragile and volatile with either side sharp move in commodity prices making it difficult to incorporate the same in our numbers. However, with near term disruption at bay, we build in lower volume growth & gross margins (~50-60 bps) for our coverage companies, going forward. Consequently, we downgrade our earnings estimates by ~8-10% along with target prices. Directional call, however, stays broadly the same wherein we are positive on M&M, Tata Motors and Ashok Leyland in OEM space while we ascribe neutral stance on 2-W pack, Maruti, Escorts," says ICICI Securities.

"With 11 month's data points already released, domestic automobile sales are expected to decline ~9% on a YoY basis in FY22E, primarily tracking double digit decline in the 2-W space (down ~15% YoY) with constitutes large chunk of volume pie (~76%) amid healthy double digit growth in rest of the segments propelled by need for personal mobility and recovery from low base. The near term volumes could be impacted by re-surfaced concerns over semiconductor supply," said the brokerage.

"However, we believe the situation will normalise from Q1FY23 onwards with healthy double digit volume growth expected in FY23E at ~12% YoY. It will be broadly aided by low base following three years of decline, favourable demographics, expected economic growth and a renewed focus on personal mobility. We expect the automotive industry to post ~9.6% volume CAGR (domestic) over FY22E-24E, with CV space seen as an outsized beneficiary of (a) the government's infrastructure expenditure and (b) revival in private capex cycle," according to ICICI Securities.

"On a very high base of FY21, tractor industry volumes are seen declining ~8% YoY in FY22E, post which they are expected to grow at their long term growth trend of ~6-7% CAGR over FY22E-24E. It will be broadly aided by favourable macroeconomic factors i.e. government support to rural incomes and infra development, high crop production and normal monsoons," claims ICICI Securities.

Stocks	Rating	Target Price in Rs/share
Maruti Suzuki	Hold	7,750
Tata Motors	Buy	550
Mahindra & Mahindra (M&M)	Buy	1,045
Bajaj Auto	Hold	3,370
Hero MotoCorp	Hold	2,515
Ashok Leyland	Buy	140
Eicher Motors	Hold	2,535
Escorts	Hold	2,050
Source: ICICI Securities. Data as of March 14, 2022