Top Broking Firms Maintains Positive Outlook On 2 Auto Stocks, Suggests Buy For 20-30% Gains

Two leading broking firms Motilal Oswal and Prabhudas Lilladher have come up with "Buy" recommendations on two high-quality auto sector stocks Tata Motors Ltd. and Hero Motocorp Ltd. The brokerage sees potential gains of upto 30% from the stock's current level. Below are key takeaways from the reports:

Hero Motocorp Ltd. (HMCL)

Prabhudas Lilladher recommends "Buy" the stock of HMCL with a target price of Rs 3,135/share. Buying the stock at the current market price could lead to potential gains of up to 30%. The stock last traded at Rs 2,426.45/share. Its market valuation is Rs 48,487.86 crore.

In the past 1 week, the stock gains 5.31%. It gave 3.39% positive return in 1 year and 53.37% in 3 years, respectively. In 5 years, gave 35.8% negative return.

According to Prabhudas Lilladher, HMCL's employee cost over the years have risen sharply when compared with other 2W OEMs and there was a need to keep it in check. Fixed cost for HMCL increased substantially over the years while volumes did not pick-up which became a drag on the margins (increased by c270bps from 3.7% in FY14 to 6.4% in FY23E). "We analyzed cost structure of all major 2W ICE OEMs (except EIM IN) to access the scope available for HMCL to reduce the cost and we arrived at an estimate of 80bps to 120bps as percentage of revenue, which could be derived in cost savings through the VRS," the brokerage has said.

It added, "We expect HMCL to show double-digit revenue growth in FY24 benefiting from a low base, improving consumer sentiment, stable pricing environment (as commodity prices stabilise) and helped by internal factors like (1) product launches in premium/scooter segment, and (2) higher exports. HMCL has fallen c11% YTD 2023, currently trading at 13.6x (-1SD 1yr fwd PE) and offers a dividend yield of 4.3%. We have a 'BUY' rating with a target price of Rs 3,135 (at 15x on Dec-24E standalone EPS, Rs 86 for Fincorp and Rs 78 for Ather)."

Tata Motors Ltd. (TTMT)

Motilal Oswal recommends a "Buy" on TTMT with a target price of Rs 535/share. The brokerage with the given target price sees a potential upside of upto 20% in the share price from the current level. The stock's last closing price on NSE is Rs 437.65/share, up 2.60% from the previous close. Its market valuation is Rs 1,45,356 crore.

In the past 1 week, the stock gains 0.12%, however, it falls 1.6% in 1 month. It has fallen 4.83% in 1 year. In the past 3 years, it gave 481.68% positive return. In the past 5 years, it gave 24.19% positive return.

According to Motilal Oswal, All three businesses of TTMT are in a recovery mode. While the India CV business will see a cyclical recovery, the India PV business is seeing a structural recovery. JLR is also witnessing a cyclical recovery, supported by a favorable product mix. However, supply-side issues will delay the recovery process. While there will be no near-term catalysts from the JLR business, the recovery in the India business (~50% of SoTP) will continue. "The stock trades at 16.9x/13.7x FY24E/FY25E consol. EPS, and 4x/3.4x FY24E/FY25E consol. EV/EBITDA. We have a Buy rating with a TP of INR525 (Mar'25 SOTP)," the brokerage has said.

Disclaimer - The stocks have been picked from the brokerage reports of Motilal Oswal & Prabhudas Lilladher. 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 consult with certified experts before making any investment decision.