Festive season to guide trend; buy Tata Motors, M&M: Nomura

Although most auto companies have seen better sales number for the month of September, Kapil Singh, auto analyst, Nomura says they haven’t really seen a significant revival. Months of October and November could show the real picture.

He thinks the uptick in numbers could have been because of inventory stocking and pre-buying by dealers since some companies had announced a price increase from October 1. Nomura prefers Tata Motors with a price target of Rs 391. In the two-wheelers' space, given the upsurge in imports, Bajaj Auto looks better positioned than Hero MotoCorp, says Singh. The house remains positive on Mahindra and Mahindra too. Amongst the auto ancillaries it has a buy on Amara Raja Batteries, Exide Industries and Bharat Forge. Below is the verbatim transcript of his interview on CNBC-TV18 Q: The sales number for most of auto stocks have been better than expected for September? What is your pick of the auto pack? A: For the car segment, the numbers were better than expected and also for some two wheelers like Bajaj Auto. There has been some stock build up which is taking place and as the festival season starts a bit early this year compared to last year, so the stock build up would be starting earlier as well. The other thing is that some of the companies pre-announced price increases as well from October 1 and so there may have been some pre-buying by the dealers which could also have upped the numbers. However, we are not really seeing a significant revival per se and maybe the real picture will be seen in the months of October or November. Q: What is your top pick in the entire space and what would the price target be over there? A: The top pick at this point would be Tata Motors. The price target is Rs 391. Q: Within the two wheeler space itself as we head into the festive season if you wanted to capitalise on the upmove, which is the stock that you would pick up? A: Amongst the two wheelers we cover Hero MotoCorp and Bajaj Auto. On both of those we have neutral ratings, but given the upsurge that we are seeing in exports Bajaj Auto looks better positioned compared to Hero. Q: What would you do with Mahindra & Mahindra (M&M) now, because although the disappointment on auto sales continue but tractors are the big positive? A: We have a buy rating. We would still retain a buy rating there, because the valuations are quite cheap and there are some upgrades that we are seeing for the tractor demand. So we will remain positive on that name as well. Q: Any of the auto ancillaries that you have a buy on - Exide, Amara Raja Batteries or even some of these other tractor makers like Escorts that have been reporting really solid numbers? A: Amongst the auto ancillaries we have buy ratings on Amara Raja Batteries, Exide and also Bharat Forge which is starting to see a good upswing in export demand. These are the names that investors could look at.