Buy Two Homegrown Auto Sector Stocks, Shares Can Give Return Up To 18%: HDFC Securities

Hero MotoCrop Limited

Hero MotoCorp Limited is the world's largest manufacturer of two-wheelers. It is a large cap Auto sector 2-wheeler manufacturer with a market cap of Rs 52,374.41 crore. HDFC Securities with a buy call has estimated a target price of Rs 3,086 per share for the stock of Hero MotoCorp. According to the given target price, the stock is likely to gain 18% from its current level.
On NSE, the stock last traded at Rs 2,621.05 per share, 1.24% above its previous close. Its 52 week high is Rs 2,938.60 recorded on 18 August 2022 and its 52 week low is Rs 2,146.85 recorded on 8 March 2022, respectively.
The stock in the past 5 years, the stock has not performed well as the stock fell 28.8% in the past 5 years. In the past 3 years, the stock has given 1.5% negative returns. The stock in a year gave 2.11% negative returns. In the past 1 and 3 months, the stock gave 0.15% and 5.4% negative returns. In a week, the stock fell by 2.08%, giving negative returns.

Hero MotorCorp - Brokerage's Comments & Views

According to the brokerage, Hero MotoCorp's (HMC) Q2 PAT (adj), at INR 7.6bn, was ahead of our estimate of INR 7.1bn due to higher-than-expected revenue growth, even as margins were largely in-line. Revenue outperformed expectations on the back of an improved mix and price hikes taken in H1.

While HMC continues to maintain its dominance in the 100-110cc segment, it targets to improve market share in the >125cc segment, led by: (1) encouraging customer acceptance for X-Tec variants; (2) upcoming new launches in each of the key product categories including 125cc and premium; (3) unveiling of models under their tie-up with Harley. After a subdued Q2, management saw a 20% YoY growth in the 32-day festive period.

Management remains upbeat on demand revival in 2Ws, given a positive rural sentiment and upcoming marriage season. This, coupled with softening input costs, is likely to drive margin expansion (about 200bps factored in) over our forecast period. "Given a lower-than-expected demand in Q2, we lower our earnings estimates by 6-8% over FY23-25E. At 13.7x FY24 PER, the valuation is attractive. We maintain BUY with a revised Target Price of INR 3,086 (from INR 3,347) as we roll forward to Sep-24 estimates," the brokerage has said.

TVS Motor Company Limited

TVS Motor Company Limited is a homegrown mid cap Auto sector 2-3 wheeler manufacturer company with a market cap of Rs 52,865.32 crore. HDFC Securities has placed a buy call on the TV motor with a target price of Rs 1,275 per share. With a given target price, the stock can give a return of 15%.

The stock last traded at Rs 1,112.75 per share, declining by 0.13% compared to its previous close. Its 52-week high level is Rs 1,176.90 recorded on 19 October 2022, and its 52-week low level was recorded on 7 March 2022, respectively.
The stock in a week has fallen 2.91%, giving negative returns. The stock in the past 1 and 3 months grew by 2.57% and 17.34%, respectively. Over the years the stock gave a 57% positive return on investments. In 3 years, the stock gave a multibagger return of 147.66%. In the past 5 years, the stock gave 57.13% positive returns on investments.

TVS Motor - Brokerage's Comments & Views

According to the brokerage, TVS' Q2 PAT, at INR 4.1bn, was ahead of our estimate of INR 3.9bn due to better-than-expected revenue growth even as margins were in line. Revenue beat was driven by higher-than-expected ASP. TVS continued to outperform peers even in H1 and has seen a 480bps market share gain in scooters to 24.1%. Also, it has recovered its lost share in motorcycles in Q2, to end H1 with stable market share YoY. Even in exports, while the 2W industry was down 6%, TVS exports were down 2%.

"With supply challenges now largely behind, we expect TVS' outperformance to continue in H2 as well on the back of the ramp-up of its new launches, including the new Ronin, Raider and Jupiter 125. Even in EVs, it seems to be ahead of its listed peers with a strong product pipeline in place for the next 24 months and it has signed up with industry experts and JV partners to emerge as a leading player in EVs. Given better-than-expected volume growth in H1 and improved outlook, we have raised our earnings for TVS by 19% each for FY23-FY25. We maintain BUY with a revised TP of INR 1,275/sh (from INR 1,030 earlier) as we roll forward to September 24 earnings," the brokerage has said.

Disclaimer

The stocks have been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.