Motilal Oswal Sees A Jump Of Upto 22.03% From CMP For 2 Auto Stocks; 1 Small Cap and 1 Large Cap

Motilal Oswal recommends a buy view on CEAT and Tata Motors Ltd with a target price of Rs 1860 and Rs 525 respectively. Approximately an upside of 22.03% for CEAT and 19.22% for Tata Motors. Both of these companies posted a strong quarter. Let's look at the details.

CEAT Ltd: Softening of Commodity price augured well for Q3 performance – Buy at TP Rs 1,860

According to Motilal Oswal, the margin expansion was driven by lower commodity price and other expenses. "CEAT's 3QFY23 performance was healthy driven by margin expansion due to softening of RM basket and lower other expenses. We expect this margin expansion trend to continue in 4QFY23 as well driven by stable domestic demand (in both OEM/replacement) and a recovery in exports."

As per the broking house the results of CEAT for the quarter were above their estimates. "Gross margin expanded 200bp QoQ (60bp YoY) to 34.5% (in line). RM basket dipped ~4% QoQ and there was an average price hike of ~0.5% in 3QFY23. Further, lower other expenses (-210bp YoY) resulted in an EBITDA margin expansion of 320bp YoY (+170bp QoQ) to 8.7% (v/s est. 8.0%). EBITDA grew 77% YoY to ~Rs 2.4b (v/s est. Rs 2.2b) during the quarter."

Motitlal Oswal has raised its FY23E EPS by ~4% to reflect the higher RM cost savings in 3QFY23, but maintained its FY24 estimates. Maintain BUY with a TP of Rs 1,860. The small cap stock had hit an upper circuit of 20% in September because of softening of commodity pricing. CEAT's 52 week high is at Rs 1,981.45.

Tata Motors: Strong demand drive led to upbeat performance: - Buy at TP Rs 525

According to the brokerage house, the operating performance was good of Tata Motos which boosted its margins. "TTMT's 3QFY23 operating performance was a beat, driven by strong mix benefits for JLR and lower discounts in the India CV business. JLR is seeing strong demand for RR/RRS/Defender (74% of order book), which augurs well for FY24 performance as supply has gradually improved. India CV should continue to benefit from good demand and focus on the demand - pull strategy."

The JLR and PV demand picked up to increase in the volumes, the brokerage house said in its report. " Wholesale volumes (excl. JVs) grew by 11% YoY. Net realizations improved 11% YoY (+9% QoQ) to GBP75.9k (est. GBP71.2k) due to a better mix.Volumes grew 33% YoY and realizations improved 3.4% YoY (+0.9% QoQ) to Rs 893k (vs est Rs884k). EBITDA margins improved 400bp YoY (+130bp QoQ) to 7% (vs est 7.3%), benefiting from mix, commodity, operating leverage and certain one-off items (80bp benefit). Recurring PBT was at Rs 3.2b (vs est PBT of Rs 1.8b; loss of Rs 3.3b in 3QFY22). "

Motitlal Oswal has raised its FY23E EPS guidance. " We upgrade our consolidated EPS estimates for FY23 (reduction in losses) and FY24 (by 19%) to account for a strong mix at JLR and better margin in the India CV business due to lower discounts. Maintain Buy with a TP of Rs525.
This large cap has a 52 week high value of Rs 519. 50

Disclaimer

The stocks have been picked from the brokerage report of Motilal Oswal, 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 consult with certified experts before making any investment decision.