The automobile sector is likely to see a mixed set of numbers for February and analysts are of the view that the sector has opportunities for long term investors.
The sector has been under pressure in the wake of the Covid-19 pandemic. In the last one year, Nifty is up about 16 percent while the Nifty Auto index has gained 6 percent.
Brokerage firms believe that the volume of commercial vehicle (CV) segment may see some upward movement in February while passenger vehicles (PV) may also see an uptick due to better chip supplies.
“CVs should maintain upward momentum in February 2022. PV volume growth should also be positive thanks to improving chip supplies. Two-wheelers (2Ws) and tractors are likely to decline due to subdued customer sentiments and the high base effect,” said brokerage firm Emkay Global.
There is a marginal pick-up in financing penetration which may help ease the burden of increase in the cost of ownership. The momentum for electric 2W continues to pick pace with customers awaiting EV launches by incumbents (Hero to launch E-2W by Mar/Apr’22), brokerage firm JM Financial pointed out.
Brokerage firm Motilal Oswal Financial Services is of the view that PVs and CVs sustained momentum in Feb’22. The lackluster demand for 2Ws remains a cause for concern, though reopening of schools and colleges is creating some demand, it is not sufficient to boost the segment.
“In Feb’22, wholesale volumes are estimated to decline by 9 percent and 25 percent year-on-year (YoY) for 2Ws and tractors, respectively. The same is are estimated to grow by 13 percent YoY for PVs as semiconductor availability improves. CV wholesales are expected to grow by 13 percent YoY for both medium and heavy commercial vehicles (M&HCVs) and light commercial vehicles (LCVs). Three-wheelers (3W) wholesales are expected to grow by 7 percent YoY,” Motilal Oswal said.
Motilal underscored that easing semiconductor supplies are boosting PV retails, but the 2W segment is yet to recover amid the high cost of ownership.
What to buy from the auto space?
Motilal Oswal prefers 4Ws over 2Ws on the back of strong demand and offers a stable competitive environment. We expect the momentum in the CV cycle to continue.
“We prefer companies with: a) higher visibility in terms of demand recovery, b) a strong competitive positioning, c) margin drivers, and d) balance sheet strength. Maruti Suzuki and Ashok Leyland are our top OEM picks. Among auto component stocks, we prefer Bharat Forge and Apollo Tyres. We also like Tata Motors as a play on the global PV cycle,” Motilal Oswal said.
“TVS remains our preferred pick in 2W segment owing to lower margin impact from commodity inflation, strong export outlook, and new product launches,” said JM Financial.
Brokerage Emkay Global has apositive view on the auto sector, underpinned by expectations of a cyclical upturn in the next three years.
“We like Tata Motors (target price: ₹575), Ashok Leyland (target price: ₹160) and Bajaj Auto (target price: ₹4,490). In ancillaries, we like Minda Industries (target price: ₹1,230) and Bharat Forge (target price: ₹950),” said Emkay.