Q3 earnings: Auto sector preview and expert picks

In an interview with CNBC-TV18, Mahantesh Sabarad, Fortune Equity Brokers, speaks about his earnings expectations from the auto sector and gives his picks.

He is bullish on Tata Motors, and Hero Honda. However, he is bearish on Ashok Leyland and Mahindra and Mahindra. Below is a verbatim transcript of his interview with CNBC-TV18's Anuj Singhal and Latha Venkatesh. Also watch the accompanying video. Q: Tata Motors, what kind of numbers are you factoring in and what is your rating on the stock? A: I have a buy rating on the stock. If you look at the recent quarter, December quarter, we think they can do reasonable profits. Although it will be sequentially down, our forecast is about Rs 1,850 crore at the bottom-line levels on a consolidate basis. So, that is a sequential drop, but then it is still strong year-on-year growth. Previous year they were still struggling with JLR in terms of turnover. Last three quarter JLR has registered superb turnaround. So that is the kind of numbers we are looking at. We have a buy. Q: What are the FY12 expectations on Tata Motors? A: In terms of FY12 expectation, we think they can do in terms of earnings per share (EPS) around Rs 110. So that is consolidated basis again, so that is fairly good. Q: Let us come to the space where there has been a bit of angst, the two wheeler space. Bajaj Auto, it has been two months of month-on-month sales falling, would you worry at all? What is the call on the stock as well? A: No, actually I am not worried. Basically what has happened at the start of this year is that interest rate sensitives are getting beaten down in the stock. Automobiles are interest rate sensitives, but my view here is slightly different. Vehicles bought for personal use are not really interest rate sensitive beyond a point and only vehicles bought for commercial use are interest rate sensitive. Bajaj Auto has only a partial portfolio, which is three wheelers, which are used for commercial use. In fact they have an exposure on exports and that brings them great amount of revenue and good deal of profits. They are actually immune to interest rates unlike other vehicle company. So, I don