In an interview to CNBC-TV18, Mihir Jhaveri, Auto Analyst, Religare Capital Markets shares his views on the auto sales numbers for March and his preferred bets going ahead. He picks Tata Motors, Ashok Leyland and Maruti Suzuki as his top bets.
Below is verbatim transcript of the interview:
Q: What was good, bad and ugly in terms of what the auto sales delivered this time around and your stock preference as well?
A: In terms of good obvious the commercial vehicle (CV) numbers continue to do well. Among medium and heavy commercial vehicles (M&HCV), both Tata Motors and Ashok Leyland had shown good numbers. They have been doing pretty well since last few months now. Four-wheelers have been steady so despite Maruti Suzuki being below estimates they have come in a 1-1.50 percent growth.
However, if you see some of the other names, which are not on the listed space, they are doing well with their new launches. On the bad side it is two-wheeler which is doing very badly given that rural slowdown has started to impact these companies.
Hero Motocorp has done close to 1 percent growth. Bajaj Auto numbers has just come out and has shown 18 percent decline. If I remove the transit part also it is 12 percent decline. TVS growth has lowered down to 7 percent so only Royal Enfield who has more of urban phenomena is doing very well. Honda even has done 1 percent decline so two-wheelers are on the bad side. I think CV is on the top and with four-wheelers on the midpart.
Q: TVS Motors has corrected quite a bit from the high point. Do you see more selling pressure; do you think the two-wheeler stocks will underperform even going forward?
A: The underperformance would continue given that the valuations are highly stretched right now. While the growth was coming they did not see much improvement in margins which the street was building in. So the interesting part would be how the margins pan out over the next two-three quarters or probably a year.
If you see the current stock price number and also if you see the consensus estimate already trading at 20 times FY16 earnings so that is a steep number and is also at a premium compared to Hero Motocorp. This is a largecap company, no disappointment on margins but at least has a volume growth and the scale with higher return ratios compared to TVS.
Q: When do you expect exports to recover for Bajaj Auto, if so by how much?
A: The management is now talking that they will see some recovery in Nigeria and in Egypt market the currency issue has been sorted out. So, coming April, May or June they expect that the numbers should come in better.
Therefore, I believe Bajaj Auto can have better numbers in terms of exports going forward in the coming months. How much, pretty difficult to say given the environment they have been facing currently. However, definitely could see some month-on-month improvement in Bajaj for exports.
Q: You did say CVs look quite good. We have already seen a big rally in Ashok Leyland, is that a stock that you still believe can outperform from hereon and what is your price target on that?
A: Our price target is Rs 80 but if you see we have a buy recommendation on the stock. The stock has done pretty well given that there has been constant earnings upgrade and volume growth which is coming in.
The stock could further outperform given that there is a lot of restructuring in balance sheet which is happening for Ashok Leyland as well as the volume growth story is intact. Any levers in terms of margin expansion in the coming quarters from the operating leverage benefit will further re-rate the stock going forward.
Q: Can you leave us with your top buys and sells?
A: In terms of top picks we continue to like the CV space. Tata Motors, Ashok Leyland are the top picks and Maruti Suzuki is one. So, out of our coverage universe we have been pushing these three stocks which we believe would deliver well. Even from results perspective they could show better numbers.
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