Stocks to buy: Maruti Suzuki, M&M, TVS Motor among top picks in auto sector by HDFC Securities

The corporate earnings for the third quarter of FY24 saw wide divergences across sectors and companies. Auto, lending financials, industrials, energy, cement, pharma, capital markets, and metal sectors saw strong year-on-year (YoY) earnings growth in Q3FY24, while staples, discretionary, IT, and power sectors disappointed.

The Nifty 50 index is now trading at 20.5x FY25 and 18.1x FY26 consensus EPS, indicating limited upside potential in the next 12 months, HDFC Securities said.

In its model portfolio, it maintains a bias toward the economy-facing and value sectors.

Among sectors, the brokerage firm prefers sectors like industrial and real estate, metal, power, insurance, cement & building materials, market infrastructure, pharma and gas. It remains underweight on consumer staples, NBFC, chemicals and small banks. It has added weights in steel, media, staffing and cash/InVIT while weights have been reduced in BFSI, industrial/real estate and energy. 

In the automobile sector, HDFC Securities recommends buying three stocks. These are Maruti Suzuki India, Mahindra & Mahindra (M&M) and TVS Motor Company. Among auto ancillaries, the brokerage has a ‘Buy’ rating on Bharat Forge, Samvardhana Motherson International, Sansera Engineering and Suprajit Engineering.

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Here are the three auto stocks to buy after Q3 results, as per HDFC Securities:

Maruti Suzuki | Buy | TP: ₹12,887

Maruti Suzuki’s Q3FY24 net profit at ₹3,130 crore surpassed HDFC Securities’ estimates of ₹2,820 crore, led by a better-than-expected margin. The margin beat was led by lower commodity costs, lower royalty, and positive forex impact. 

On the back of its aggressive launch spree over the last few quarters, Maruti Suzuki continues to be the market leader in the UV segment. While its order backlog has reduced to 215,000 units, it is on expected lines given the improved supply.

“The success of GV (9- 10k units per month) is a case in point that customers are considering Maruti’s products as “worthy contenders” even in the >INR1500k segment, where a few investors were so far doubting the company’s “right to win”. With exports picking up and higher utilisation across plants (Manesar, SMG Gujarat) we expect the EBITDA margin to expand 240 bps over FY23-26E,” said HDFC Securities.

It maintained a ‘Buy’ call on the stock and raised the target price to ₹12,887 per share from ₹12,052 earlier.

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Mahindra & Mahindra | Buy | TP: ₹1,862

While industry demand is slowly decelerating, Mahindra & Mahindra continues to enjoy a healthy order backlog at 226k units in SUVs. In tractors, M&M was able to increase its share by 80 bps to 41.8% in 9M on the back of new launches, the brokerage firm noted.

M&M does not expect a major impact on the supply chain due to the Red Sea crisis. However, the delivery time for the OJA brand of tractors has increased by 4-5 weeks. 

HDFC Securities continues to remain positive on the business momentum, given a strong order backlog for UVs may help it further gain share; recent new launches may help gain share in tractors and focused strides taken to achieve a strong position in EVs. 

It maintained a ‘Buy’ rating and raised the target price to ₹1,862 per share from ₹1,767 earlier.

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TVS Motor Company | Buy | TP: ₹2,211

While TVS gained about 330 bps market share in motorcycles for YTDFY24 to 10.5%, it has maintained its share in ICE scooters. TVS continues to outperform the industry on the back of healthy demand for its products like Raider, i-Qube, Jupiter125, etc. Even in two-wheeler Electric Vehicles (EV), TVS is putting the right building blocks in place to emerge as a leading player. Its investments in e-bikes in Europe, Norton and the extension of tie-up with BMW Motorrad are expected to deliver strong returns over a 2-3 year horizon, the brokerage said.

Given its steady margin improvement in each quarter in FY24 and continued market share improvement, it has raised estimates in the range of 2-9% over FY24-25E. 

The brokerage house maintained a ‘Buy’ call with a revised target price of ₹2,211 per share as against ₹1,778 earlier.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.