Auto stocks that analysts prefer ahead of June sales data

Commercial vehicle (CV) sales may stay on the uptrend while some improvement in sales is likely in the personal vehicle (PV) segment, analysts said ahead of June sales data. Two-wheelers numbers may be weak on a month-on-month (MoM) basis post-marriage season demand in May, they said. Tractors sales may improve MoM but would be weak YoY due to delayed monsoon, analysts added.

Motilal Oswal said it prefers companies with higher visibility in terms of demand recovery, a strong competitive positioning, margin drivers, and balance sheet strength. Maruti Suzuki and Ashok Leyland are its top auto picks. It also likes Tata Motors as a play on the global PV cycle. In the ancillary space, it prefers Bharat Forge and Apollo Tyres.

Nomura India prefers Mahindra & Mahindra (M&M) due to strong model cycle tailwinds. It also likes Tata Motors and Ashok Leyland. Rising electrification and content per vehicle will be the key value drivers for suppliers, the brokerage added, as it prefers Sona Comstar, Minda Industries and Sansera in the ancillary space.

Emkay likes Tata Motors, Maruti Suzuki and Escorts in the auto space and Motherson Sumi and Minda Industries in the ancillary space.

Choice Broking, meanwhile, has an 'Outperform' rating on Ashok Leyland and an 'Add' rating on a handful of stocks such as M&M, Maruti, Hero MotoCorp and TVS Motor.
Channel checks, said Choice Broking, suggests sales momentum for PV, CV, and tractor segments may continue to be healthy YoY despite the industry entering into the off-season cycle i.e. July-August. The brokerage expects two-wheeler sales to be weak due to higher vehicle and fuel costs, cooling-off of marriage-related purchases, and weak sentiment in the lower-income bracket.

Nomura India said healthy demand trends sustained for both medium-heavy commercial vehicles (MHCV) and PV in June, as it expects PV wholesales to benefit from improving chip supplies, with June volumes likely at 3,17,000 units, being the ‘all-time best June’ wholesales. The brokerage expects a further improvement in July.
For two-wheelers, retail sales have dropped 8-10 per cent MoM post-marriage season demand in May, Nomura said, as it estimates industry retails in June to be below the June 15 levels.

"While easing semiconductor supplies boost PV retail figures, CV demand momentum is sustaining. We prefer 4Ws over 2Ws underpinned by strong demand and a stable competitive environment. We expect the CV cycle to maintain its momentum," Motilal said.

Motilal said a delayed monsoon has led to the postponement of demand for tractors. Agricultural demand is subdued currently, and commercial demand remains flat. Inventory in the system is around 30 days, it said. On a year-on-year basis, this brokerage expects tractor volumes to decline 3 per cent for M&M and 2 per cent for Escorts.

On a MoM basis, however, Emkay sees tractor volumes improving MoM, with the growth of 11 per cent for Escorts and 10 per cent for M&M in the domestic market. Growth has been restricted as farmer sentiments have been hit by lower crop realisations in recent months, Emkay noted.

Agencies

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