The auto space is back in the game after a very long time. The decline in major commodity prices has been fruitful and margins have already started to improve. The availability of semiconductor chips has been encouraging and companies are fulfilling the gaps by adopting different strategies as evidenced by the increase in volume offtake. The automakers have overcome the challenges and bounced back impressively.
Amid this positive environment and on the back of July auto sales reported earlier this week, let's find out between Maruti Suzuki, Mahindra & Mahindra (M&M) and Tata Motors, which auto major is a better investment for the long term.
Stock Price Trend
In the last one year, Tata Motors has outperformed the others as well as the benchmark Nifty Auto index. Tata has surged over 33 percent in the last one year while M&M and Maruti Suzuki advanced 16.5 and 6 percent, respectively. In comparison, Nifty Auto has risen 19 percent in this period.
Meanwhile, in 2023 YTD, as well, Tata Motors has topped the list with 60 percent returns. M&M and Maruti, on the other hand, have gained 18 percent and 13 percent, respectively. Nifty Auto, however, has jumped 22 percent this year so far.
In the long term, 3 years, also, Tata Motors skyrocketed the most, 457 percent followed by M&M, soaring 144 percent and Maruti up 50 percent.
Earnings
In the June quarter, Maruti reported a 145.31 percent jump in its net profit to ₹2,485 crore as compared to ₹1,013 crore last year. Its revenue from operations jumped 21.99 percent to ₹32,327 crore in Q1 FY24 as against ₹26,500 crore in the year-ago period.
The company sold a total of 4,98,030 vehicles during the quarter, higher by 6.4 percent compared to the same period the previous year. During the Quarter, the company registered the highest-ever quarterly net sales of ₹30,845.2 crore as against ₹25,286.3 crore in Q1 FY23. Meanwhile, in July, Maruti Suzuki recorded sales of 1,81,630 units in July 2023, up from 1,75,916 units sold in July 2022.
M&M has not yet posted its June quarter results. However, the revenue for the period is seen growing up to 24 percent Yoy and net profit is expected to rise 34 percent in Q1FY24. The company's overall volumes for the first quarter are likely to grow 11 percent YoY, whereas auto volumes may rise 21 percent.
Meanwhile, in July, M&M reported a total sales of 66,124 vehicles (including exports) in July 2023, which is 18 percent up from the sales for the same period last year. The automaker reported its highest-ever sales of SUVs at 36,205 units in July 2023, up 30 percent year-on-year (YoY). In the financial year 2022-23 (FY23), M&M sold 27,854 SUVs. Year-to-date sales were also up 32 percent YoY and reached 136,367 units for April-July 2023, against 103,274 units.
However, Tata Motors reported a consolidated profit of ₹3,202.80 crore for the June quarter compared with a loss of ₹5,006.60 crore in the same quarter last year. Its consolidated revenue for the quarter came in at ₹1,02,236 crore, up 42.1 percent.
Meanwhile, in July, Tata's total sales in the domestic and international market for July 2023 were at 80,633 vehicles, a fall of 1.4 percent as compared to 81,790 units sold during July 2022.
Which is a better investment for the long term?
Deepak Jasani, Head of Retail Research, HDFC Securities has picked Maruti between the three: Within the PV segment, the market is clearly tilting towards UVs and hence Maruti and M&M have seen strong volume growth. Tata Motors has been losing market share in the CV segment where it faces strong competition. Also, the increasing interest rates in US and Europe and the recessionary environment could impact JLR volumes in the near term. Among these three companies, our top pick based on the expected upside would be Maruti.
Mumuksh Mandlesha, Research Analyst, Anand Rathi has also chosen Maruti: The preferred pick is Maruti Suzuki for the long term as it would witness stronger performance led by growth in India’s under-penetrated PV segment. While in case of Tata Motors’ global PV and M&M’s tractor underlying segments have reached a high level of penetration. So the pace of growth for Tata Motors and M&M would be lower than for Maruti Suzuki. Maruti Suzuki exports also to see higher growth (growing 3x in next decade) led by leveraging Toyota partnership in global markets.
Akshay Tiwari - Fundamental Analyst, Religare Broking likes Maruti best: Amongst the Auto sector, the demand for Passenger Vehicle looks strong mainly driven by demand for Utility Vehicles. Similarly, the companies within this space are strategically placed and have a wide range of product offerings for customers. For Maruti, the participation of UVs is seeing a continuous uptrend in its volumes (at 25.4 percent as of Q1FY24) and this trend is expected to continue in the coming quarter which would eventually aid in better revenue, realizations and margins expansion.
Preferred picks from the 3 would be in the following manner: Maruti> M&M> Tata Motors.
However, Parul Sharma, Research Analyst, SAMCO Securities prefers M&M: We believe M&M checks all the boxes for a good investment pick for the long term. The company is re-writing its story in the auto segment by strengthening its presence in SUVs. The increasing capex will power the growth and increase the production levels. With a strong focus on market share gains and an improved product mix, the company has the ability to build a robust order book. The firm’s aggressive push in Mahindra’s EV business arm- Mahindra Electric Automobile Ltd. also has the potential to unlock values for the investors in the future. Taking into consideration the above factors along with a positive outlook for the tractor segment, M&M is a stock to keep an eye on.
Shrey Jain, Founder and CEO of SAS Online also liked M&M: Among the sector giants, Tata Motors' stock has surged by over 57 percent, Maruti Suzuki India has seen a jump of 13.29 percent, and M&M has gained 16.47 percent so far this year.
Looking ahead, Electric Vehicles (EVs) are the future, and Tata Motors holds a significant early-moving advantage with a dominant market share in the EV segment with 77% share of the EV market. Similarly, M&M is also focused on expanding its presence in the EV segment and targeting 20% to 30% of Mahindra SUV sales to come from electric vehicles by 2030.
At the moment, the valuations of Mahindra & Mahindra (M&M) look appealing.
Ashwin Patil, Senior Research analyst at LKP Securities prefers M&M: Among the three, we find MnM better placed as they are riding the SUV wave very successfully. Monsoons are expected to be in the normal range post the strong July, therefore, aiding well for the tractors segment despite El Nino fear.
Suman Bannerjee, CIO, Hedonova has picked the third option Tata Motors: I think Tata Motors would be the best choice for the long term, mainly because of its focus on the EV sector. With the growing demand for electric vehicles, Tata Motors' leadership in the four-wheeler EVs and its plans to introduce more EVs give it a competitive advantage in the market. Additionally, Tata Motors' commitment to sustainable and environmentally friendly transportation aligns well with the global shift towards cleaner energy solutions, which could lead to long-term growth and success in the industry.
Manoj Dalmia CEO of Proficient Equities also likes Tata Motors: Tata Motors stands out as a highly diversified company, excelling in various segments and leading the way in new technologies such as electric vehicles and autonomous driving. This positions Tata Motors as a promising choice, well-positioned to capitalize on the growing Indian auto market in the long term.
However, for M&M, he recommended that investors facing profit booking, consider purchasing the stock during dips, with a potential upside at ₹2,200, whereas for Maruti, he suggests watching for a stock breakout beyond ₹10,100 levels with substantial trading volumes, with a long-term target of ₹14,000.
