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Run-up in auto stocks continues for yet another session, Morgan Stanley bullish on these five

The Nifty Auto index has gained 20 percent since its March lows, turning out to be the biggest gainer among all sectors, pricing in expected benefits of falling commodity prices, especially steel and aluminium, the key material for making vehicles, resulting in easing cost pressure.

June 24, 2022 / 06:35 PM IST
 
 
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Auto stocks extended gains for yet another session on June 24, with the Nifty Auto index rising 2 percent as most shares witnessed a long build-up given the stability in metal prices that had raised concerns over margins.

The Auto index has done well in the charts, seeing the formation of higher highs and higher lows, particularly since the troughs witnessed in March, which appear to be its bottom this year.

The Nifty Auto index had gained 2 percent. TVS Motor Company and M&M gained 3.5 percent and 4.3 percent respectively, while Hero MotoCorp climbed over 3 percent on reports that the two-wheeler maker has decided to hike its motorcycles and scooters prices from July 1.

Eicher Motors, and Maruti Suzuki jumped 2 percent and 1 percent respectively. Ashok LeylandTata Motors, and Bajaj Auto gained 0.2-0.8 percent, while auto ancillary companies such as Sona Comstar, MRF, and Bosch rose between 1-4 percent.

Tube Investments of India, the flagship company of the Murugappa group, was the biggest gainer, rising 4.9 percent as Motilal Oswal has initiated coverage on the stock with a buy rating and a target price of Rs 1,900, implying 25 percent potential upside from Thursday's closing price.

“Tube Investments offers diversified revenue streams, with strong growth in the core business (around 25 percent CAGR), ramp-up in CG Power and optionality of new businesses incubated under TI-2 strategy. At the consolidated level, we estimate revenue, EBITDA, and PAT CAGR of around 15 percent, 20 percent, and 20 percent over FY22-25, respectively,” said the brokerage.

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CAGR is compound annual growth rate. CG Power (formerly Crompton Greaves) was acquired in 2020. EBITDA stands for earnings before interest, tax, depreciation and amortisation. PAT is profit after tax.

The Nifty Auto index has gained 20 percent since its March lows, turning out to be the biggest gainer among all sectors, pricing in expected benefits of falling commodity prices, especially steel and aluminium, the key material for making vehicles, resulting in easing cost pressure.

“The automobile sector will also see benefits of cooling commodity prices like steel and aluminium. New steel contracts could get negotiated at a lower price which will help improve the margins. The chip shortage will also start to abate significantly in the forthcoming quarters, helping top OEMs (original equipment manufacturers) raise production,” said Naveen Kulkarni, chief investment officer at Axis Securities.

Meanwhile, Morgan Stanley said volume outlook across segments is constructive and companies have taken price hikes but cost pressures are easing.

The global research house is overweight on Maruti Suzuki, Ashok Leyland, Tata Motors, M&M and Eicher Motors. “We are equal-weight on Bajaj Auto & Samvardhana Motherson, whereas we are underweight on Amara Raja Batteries, TVS Motor Company and Hero MotoCorp,” it said in a report.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

 
Sunil Shankar Matkar
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