Top bets? 3 auto stocks on Mayuresh Joshi’s watch list

"The kind of numbers that M&M is posting specifically in the last few quarters and the kind of demand pipeline that has been created, semiconductor issues are largely behind us at this point of time. Within the commercial vehicle space, Ashok Leyland has displayed resilient earnings and so has TVS Motors within the two-wheeler pack. These three stocks probably remain on our watch list," says Mayuresh Joshi, Head- Equity Research, William O Neil India

What is the best way to play the insurance sector, if at all?
If you look at the stack-up for the space itself, annualized premium equivalents have been very subdued for the better part of the last financial year. We have seen obvious traction happening because of the product mix in terms of value of the business margins. But with the budget announcements that have come through, the expectations in terms of HDFC Life and Max Life getting hit in terms of top line to the extent of 10-15% for some element of the products above that 5 lakh premium mark staying with them, expected to carry this through across the balance sheet in terms of the bottom line getting hit by 5% as well.

So to that extent, after the kind of damage that we probably saw in insurance stocks, some element of respite is coming through. Now, if you stack it up, SBI Life has the lowest in terms of exposure to these products, hardly 1.5% in terms of the annualized premium equivalent.

Again, in terms of value of new business margins consistently being held on to that number – about 28-29% or so, the bank insurance through SBI branches and the lowest ratio in terms of cost plus commissions compared to the entire life insurance industry is at 8-9%, compared to 20-21% for HDFC, ICICI Pru, to a maximum of around 17-18%, holds good for the stock.

Somewhere, because of the policy changes, expectations in terms of regulatory headwinds and the embedded value of return on the end of the value is expected to take a hit and thereby leading to the de-rating that happened on these stocks post-Budget. But if I stack it up, SBI Life, probably can go through all these elements in terms of regulatory/budget announcements and the dynamics on the balance sheet.

What is your take on the entire auto sector, would you still stick with M&M as one of the top bets?
It seems to be the case. The kind of numbers that M&M is posting specifically in the last few quarters and the kind of demand pipeline that has been created, semiconductor issues are largely behind us at this point of time. Therefore, the aspects in terms of earnings growth may hold out very strongly for the stock under consideration. Within the commercial vehicle space, Ashok Leyland has displayed resilient earnings and so has TVS Motors within the two-wheeler pack. These three stocks probably remain on our watch list.