Tata Motors among 7 auto stocks to buy as Jefferies sees strong returns in 2023

Tata Motors among 7 auto stocks to buy as Jefferies sees strong returns in 2023

Market


The Indian auto sector is poised to deliver strong stock returns in 2023, in Jefferies’ view. Demand is recovering from its worst slowdown in decades, and the global brokerage expects 12-18% volume CAGR for PVs, 2Ws and trucks over FY23-25E and Strong top-line growth along with improving margins should fuel double-digit EPS CAGR for most OEMs, it said.

Electrification is picking up, with TVS Motor and Tata Motors leading among incumbents. TVS, Maruti, Tata Motors and Eicher Motors are Jefferies preferred buys in the Indian auto stocks. 

“India’s auto demand, after suffering its worst downturn in decades, appears poised for double-digit growth. With China starting to ease its Covid policy and supporting its ailing property sector, metal prices are likely to have bottomed out; however, we believe the intensity of any potential price increase is unlikely to be similar to 2020-22,” the note stated.

It has Buy tags on auto stocks Ashok Leyland with a target price of 180, Bajaj Auto (TP: 4,200), TVS Motor (TP: 1,550), Maruti Suzuki (TP: 11,250), Tata Motors (TP: 540), Eicher Motors (TP: 4,250), Hero MotoCorp (TP: 3,200)

Meanwhile, it has upgraded Motherson (SAMIL) to Hold (TP: 70) from underperform. And, has Underperform ratings on Bharat Forge (TP: 555), and Mahindra & Mahindra (M&M) (TP: 1,100).

Jefferies remains positive on autos, with the sector entering a positive demand and margin, and hence earnings, cycle. The Nifty Auto Index outperformed Nifty-50 for eight consecutive years over 2010-17 but lagged through 2018-21, and it said that the tide is turning again, with 11% outperformance in 2022, and believes the Indian auto sector should deliver strong returns in 2023 too. 

“Most stocks are trading near or below their respective last 10- year average PE on our FY24 estimates; we find this attractive in context of a strong earning cycle. We believe that strong volume growth, coupled with healthy margin expansion, will drive double-digit earnings CAGR for most of our covered OEMs over the next 2-3 years. Over FY22-25E, we see EPS almost quadrupling for Maruti, and trebling for TVS and Eicher,” the brokerage suggested.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.


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