The Auto index has been one of the better-performing sectors in the last 1 year. While the Nifty index is up only around a percent in this time, the Nifty Auto index has advanced nearly 16 percent. The rise in the auto sector comes on the back of demand recovery and improvement in semiconductor chip supply.
Mahindra and Mahindra (M&M) and TVS Motors, both have performed well in the past 1 year. While M&M has risen 46 percent, TVS Motor has gained 40 percent.
However, M&M reported better results than its peer TVS Motor in the March quarter. M&M saw a massive 427 percent jump in its standalone profit after tax at ₹1,292 crore versus ₹245 crore in the same quarter last year. Its revenue for the quarter stood at ₹17,124 crore, up 28 percent jump from ₹13,356 crore in the year-ago period.
Meanwhile, the net profit of TVS Motors declined 5 percent to ₹274.5 in Q4FY22 from ₹289.24 crore in the corresponding period of the previous financial year. However, its revenue rose 4 percent to ₹5,530.51 crore as against ₹5321.93 crore registered in the year-ago period.
But on the sales front, while M&M sold 1.5 lakh vehicles in Q4 of FY22, up 43 percent YoY, TVS Motor sold 8.56 lakh vehicles last quarter, down 7.7 percent from 9.27 lakh units sold in the year-ago period.
So which one of these stocks should investors choose for the long term?
Nishit Master, Portfolio Manager at Axis Securities said, "though we like both, we prefer M&M over TVS Motors. We believe M&M has all its business units firing, be it tractors, where it has again started gaining market share, or Utility Vehicles, where the new product launches have seen unprecedented response from clients. Or be it EVs where they have recently got a strategic investor. Improving the efficiency of capital utilization by M&M can lead to further re-rating of the stock, which is an added advantage for stock returns."
However, Sunil Damania, Chief Investment Officer, MarketsMojo believes both M&M and TVS Motors present long-term potential and are good opportunities; hence it is not a question of either or. Also, since both complement each other's businesses; M&M mainly into 4-wheelers and TVS Motors into 2-wheelers, both companies are likely to do exceptionally well. Both auto majors are focusing on EVs, making it an exciting opportunity from an investor's point of view, he added.
Aniket Mhatre, Institutional Research Analyst at HDFC Securities also said that they have 'buy' rating on both the stocks but recently raised the target price of TVS Motor. HDFC expects M&M to be the best performer in Q1, with an estimated 41 percent growth in earnings QoQ. This strong performance is likely to be driven by a sharp shift in mix towards its high-margin tractor segment.
For TVS Motor, HDFC believes the volumes will rise 5 percent QoQ, however, its upside is capped by the chip shortage impact. It added that the QoQ margin pressure will be driven largely by adverse mix and high raw material costs.
Going ahead, analysts remain positive on the sector.
"With monsoons expected to be normal, and final agriculture prices still buoyant, we expect domestic 2W demand to be strong. The recent fire and quality-related issues in EVs manufactured by new players have also reduced the anxiety of investors for the listed 2W manufacturers. One area of concern could be export, where we are seeing initial signs of a slowdown since some major export destinations for Indian 2W manufacturers are facing high inflation and currency crisis. Amongst the 2W stocks, our preference is TVS Motors," Master of Axis Securities stated.
Damania of MarketsMojo also agrees. As far as 2wheelers are concerned, the outlook appears extremely promising, he said.
"There are three reasons for that. We believe crude oil prices will drop. Also, reducing the price pressure on petrol will decrease the feasibility of running a two-wheeler. Hence, a decrease in crude oil prices could affect the running cost of 2-wheelers, supporting people's buying behaviour and decisions. So far, monsoons seem to have progressed well, which could encourage the growth of rural India. Since a good deal of demand comes from rural India for 2-wheelers, it's another positive factor. Raw materials account for almost 75 to 80 percent of the cost as a percentage of sales. With the price of raw materials coming down, it could bring down the cost. While manufacturers may retain some gains, they will also pass down specific price reductions to end customers. And that will further boost demand for 2-wheelers. And hence, we believe that the 2-wheeler industry should do well," Damania explained.
