Auto Sector Slows Down : According to the analyst, the Nifty Auto Index has witnessed a steep 14 per cent correction in the last three months, which is disappointing. The Nifty Auto index underperformed Nifty more than InCred expected, with almost 88 percent of its covered auto stocks missing December quarter Ebitda estimates, the only outliers being Ashok Leyland Ltd and Hero MotoCorp Ltd, the
broking firm said, and earnings upgrade is scarce and thus InCred retains its ‘Neutral’ stance on the auto sector along with select rating upgrades on stocks.“We note that LTM (Last Twelve Months) quarter end-monthly recorded higher sales and since the mid point of CPB’s schedule is 11 months away, if trail and new orders are not kept afloat, then risk of CPB further extending to the left,” said the brokerage. It retained estimates for Maruti Suzuki India Ltd, Ashok Leyland Ltd and Balkrishna Industries Ltd.
Its preferred OEM is Hero MotoCorp due to valuation comfort, followed by Maruti Suzuki India Ltd and Ashok Leyland Ltd for volume growth recovery. The forward PE valuation softened below the 10-year mean level, while the elements for demand recovery are being sown in terms of easing of interest rates and improved disposable incomes through recent cut in income-tax
rates, the brokerage said. We have also downgraded volumes across our coverage universe, though the only upgrade is in case of TVS Motor Company. The big volume cut was for Tata Motors. The sharper-than-expected cut in Ebitda estimates is led by Tata Motors, Bharat Forge, Maruti Suzuki, Eicher Motors and Hyundai Motor India. “Our upgrades to FY25F-26F Ebitda are primarily for Mahindra & Mahindra
or M&M and TVS Motor Company,” it added. InCred Equities said volume underperformance & market share pressure would remain & rupee depreciation to have negative impact on Ebitda margin for Hyundai Motor India Ltd, as company is net importer.
“Some of the stocks with Key Reduce rating are Tata Motors, TVS Motor Company and Escorts Kubota given their rich valuations. “We have an Add rating on Bharat Forge, Endurance Technologies and Balkrishna Industries and a Reduce rating on Bosch, Apollo Tyres and Exide Industries,” the brokerage said in a note.