Tata Motors, Ashok Leyland among 7 Indian auto stocks to buy as Jefferies sees strong returns in 2023

 

• Indian auto sector poised to deliver strong stock returns in 2023, says Jefferies

The Indian auto sector is poised to deliver strong stock returns in 2023, according to Jefferies. Demand is recovering from its worst slump in decades, and global brokerages expect 12-18% volume CAGR for PVs, 2Ws and trucks in FY23-25E and a strong top-line along with improving margins Growth will lead to double-digit EPS CAGR for most. OEM, it said.

Electrification is gaining momentum, with TVS Motor and Tata Motors leading the incumbents. TVS, Maruti, Tata Motors and Eicher Motors are Jefferies' favorite buys in Indian auto stocks.

"India's auto demand, after its worst decline in decades, looks set for double-digit growth. With China starting to ease its Covid policy and supporting its ailing property sector, metal prices A decline is likely; however, we believe that the intensity of any potential price increase is unlikely to be the same as in 2020-22," the note said.

This includes BUY tag on Ashok Leyland Auto stock with target price of ₹180, Bajaj Auto (TP: ₹4,200), TVS Motor (TP: ₹1,550), Maruti Suzuki (TP: ₹11,250), Tata Motors (TP: ₹) Huh. 540), Eicher Motors (TP: ₹4,250), Hero MotoCorp (TP: ₹3,200)

Meanwhile, it has upgraded Motherson (SAMIL) to Hold (TP: ₹70) from Underperform. And, Bharat Forge (TP: ₹555), and Mahindra & Mahindra (M&M) (TP: ₹1,100) have Underperform ratings.

Jefferies remains positive on auto, with the sector entering a positive demand and margin, and therefore earnings, cycle. The Nifty Auto index outperformed the Nifty-50 for eight consecutive years from 2010-17, but lagged in 2018-21, and it says the tide is turning again, with an 11% outperformance in 2022, and believes The Indian auto sector should give strong returns in 2023 as well.

“Most stocks are trading near or below their past 10-year average PE on our FY24 estimates; We find this attractive in the context of a strong earnings cycle. We believe strong volume growth, coupled with healthy margin expansion, will drive double-digit earnings CAGR growth for most of our covered OEMs over the next 2-3 years. In FY22-25E, we see EPS almost quadrupling for Maruti and tripling for TVS and Eicher," the brokerage suggested.