Shining bright! Jefferies analysts pick 4 auto stocks for 2023

NEW DELHI: With India's demand recovering from its worst slowdown in decades, Jefferies analysts say the Indian auto sector is poised to deliver strong stock returns in 2023. The global brokerage has picked four Indian auto stocks - TVS Motor, Maruti Suzuki, Tata Motors, and Eicher Motors among its preferred buys.

Nifty Auto index outperformed Nifty50 for eight consecutive years over 2010-17 but lagged through 2018-21 amid multiple sector headwinds. "The tide is turning again, with 11% outperformance in 2022, and we believe the sector is poised to deliver strong stock returns in 2023 too. Most stocks are trading near or below their respective last 10-year average PE multiples on our FY24 estimates; we find this attractive, especially in the context of a strong earning cycle," Jefferies said.

The brokerage sees TVS Motor at Rs 1,550, Maruti Suzuki at Rs 11,250, Tata Motors at Rs 540, and Eicher Motors at Rs 4,250.

The brokerage has also taken a positive stance on Ashok Leyland, Hero Motocorp, and Bajaj Auto. "We maintain underperform on Bharat Forge and M&M, but upgrade Motherson Sumi from underperform to hold," said Nitin Mangal and Sagar Sahu of Jefferies.

Analysts say auto demand is recovering from its worst slowdown in decades, and they expect 12-18% volume CAGR for passenger vehicles, two-wheelers, and trucks over FY23-25E. Strong top-line growth with improving margins should fuel double-digit EPS CAGR for most OEMs, the report said.

"While EV adoption in PVs is slower (1% of the industry in Dec quarter), Tata is leading, with EVs now forming 10% of its India PV volumes, and we believe it will benefit from rising EV adoption in the segment," it said.

TVS Motor
The analysts expect TVS EPS to treble over FY22-25. "TVS has traded at an average 25x PE over the last 10 years. We find its 24x FY24E PE attractive, given the strong earnings outlook and improving franchise. We believe valuations have the potential to expand if TVS can garner a similar market share in EV scooters as in ICE scooters," it said.

Maruti Suzuki
The brokerage sees Maruti's demand, product, and margin cycles aligning favorably, driving almost quadrupling of EPS over FY22-25E. "Stock is trading at 20x FY24E PE on our estimates versus the last ten-year average of 24x. We find this attractive in the context of a strong earnings cycle. We rate Buy with an Rs 11,250 based on 25x Sep-24E PE," it said.

Eicher Motors
Jefferies expects Eicher's EPS to almost treble over FY22-25. "The stock is at 23x FY24E PE vs its last 10-year average of 28x, which we find attractive, given strong earnings outlook, differentiated products, and significant headroom for long-term growth. We rate it a Buy with a Rs 4,250 target based on 28x Sep-24E PE for RE and 5.5x Sep-24E PB for CV business," it said.

Tata Motors
Although Jaguar Land Rover (JLR), chip constraints, and weakening global macro and power availability concerns in Europe are posing near-term pressures, analysts say a confluence of improved strategy and cyclical recovery is driving a big turnaround in Tata's India business performance. "We rate Buy with a target of Rs 540; India business forms 77% of our target price," it said.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)