19 Stocks From Automobile Sector To Buy As Suggests Sharekhan

Leading brokerage firm Sharekhan is positive on the Automobile sector as it delivered In-line performance. The brokerage believes the sector's Outlook is bright. Sharekhan said, "Operating performance of our automobile universe was in line with expectations as reported EBITDA margin at 13% was a mere 20 bps ahead of estimates."

The brokerage has come up with a Buy rating on 19 stocks from the sector. It listed 6 large-cap stocks, 8 midcap stocks and 5 Small-cap stocks. The brokerage has listed 4 OEMs and 9 Auto Ancillaries as Preferred Picks.

OEMs:Tata Motors, Hero Motocorp, M&M and Maruti.

Auto Ancillaries: Bosch, Exide Industries, Mahindra CIE, Lumax Auto Technologies, Schaeffler India, Ramkrishna Forgings, Apollo Tyres and Gabriel India

In-line performance, Outlook bright

According to Sharekhan, Automobile companies clocked a decent performance in Q4FY23, most of the companies displayed inline with estimates and very few companies missed our estimates. For Q4FY2023, our auto universe (ex-TML) performed in line with estimates clocking revenue growth, merely 0.8% above expectations and EBITDA 2.5% above expectations. EBITDA margin was just 20 bps above estimates as most of the companies have reported in line operating performance.

The universe reported 6.3% q-o-q increase in revenue and 11.3% q-o-q increase in EBITDA along with 57 bps improvement in EBITDA margin to 13%. Except eight companies, others in our universe reported an improvement in EBITDA margin on q-o-q basis supported by benign RM cost trend and healthy topline performance led by higher premiumization.

Valuations

According to Sharekhan, Broadly, the auto sector performed in line with expectations in Q4FY23 largely on account of healthy operating performance. Going forward, the automotive sector is expected to register single digit or low double digit volume growth in FY24 on account of high base effect. OEMs are looking for 5-7% growth in PV volumes, 10-12% growth in CV volumes, low single digit growth in tractor volumes. A further two-wheeler segment is expected to register double-digit revenue growth in FY24.

The brokerage said, "While volume growth in expected to moderate in FY24 due to high base, we believe that earnings growth would be driven by the improvement in operating performance led by rise in premiumization, efficient cost control, a better product mix and RM cost tailwind. Besides that, we believe that the legacy players would be more aggressive on their EV roadmap in FY24 compared to earlier years on availability of demanding products in hand. Hence, we continue to maintain our positive stance on the automobile sector."

Coverage Universe

1. Large Cap Stocks

2. Midcap Stocks

3. Small Cap Stocks

Note - @ MM & MVML; # Consolidated; $ core business

CMP as June 12, 2023

Disclaimer - The above Automobile stocks have been picked from the brokerage report Sharekhan. 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.