Takeaways from June auto sales: Which stock should you bet on?

Recently auto companies like Bajaj Auto, JLR, TVS Motor and Hero Motocorp posted their June sales numbers. Speaking to CNBC-TV18, Mihir Jhaveri, Auto Analyst at Religare Capital Markets gave his trading ideas in the auto industry. Below is the verbatim transcript of Mihir Jhaveri's interview to Nigel D'Souza & Reema Tendulkar on CNBC-TV18. Reema: Let me start with Tata Motors. Domestic sales look quite subdued especially the medium and heavy Medium and heavy commercial vehicle (MHCV) but Jaguar Land Rover (JLR) US retail sales are looking strong. How would you rate it now?A: JLR is doing pretty good and if you see JLR volumes have been pretty strong in US. Now we will see how the other geographies also turn out but I believe that from JLR perspective they are doing quite okay. So, as domestic is concerned yes, there is a blip in terms of MHCVs not doing that great. So, there will be some hiccups at least which we see in the results where the margins could get impacted. But from JLR perspective it is fairly okay.Nigel: What is your outlook on Tata Motors. From these levels do you have a target price?A: Yes, we have a target price of Rs 530. We have a buy rating on the stock. So, that stock looks pretty decent at current levels as well and given that the volume trajectory for JLR will be reasonably okay I believe that the stock has some more leg up.Reema: What about Bajaj Auto, because lower exports continue to hurt Bajaj Auto's total performance. Even the management guidance was not very optimistic for the month of July, they said it will be similar to what we saw in June. What should a long term investor do in Bajaj Auto, how long with all these export issues stay to iron out?A: Exports will take a while for Bajaj Auto and if you see from a domestic perspective then from a domestic point of view they are doing pretty okay given that the Avengers and the new models are doing well.Secondly they also have some cushion in terms of margins even though export is not doing well because of the mix change as well as some benefits of the currency, though I am not sure if that would be for this quarter but at least they have that handy with them. So, overall from a numbers perspective yes, it has been disappointing for Bajaj Auto, but then the stock is at 15 times FY18 number. So, it is reasonably valued right now given the fact that it is only at 15 time vis-à-vis some other stocks which are quite high.Nigel: What about Maruti Suzuki? That stock has done well. It has been fairly resilient given that the Yen has come down from around 120/USD to around 105/USD sub odd levels. This time around as well there was a blip. What is the outlook on Maruti Suzuki, margin pressure is likely to be there because of the Yen but on the whole how would you rate the stock?A: Basically for FY17 Maruti Suzuki will be having problems given that the supply crunch is there. Bearing aside this blip in terms of the Subros thing which has happened but nevertheless they don't have that adequate capacity even though if they want, if the demand is strong. So, as far as demand is concerned probably for the new models this is not an issue but supply is a big issue. So, I don't think they will grow more than double digit, 9-10 percent this year and you will have some margin impact as well. So, probably from an earnings upgrade point of view we will not have any earnings upgrade in Maruti Suzuki and that is where though the stock has been fairly resilient once the numbers probably come in we could see some correction in the stock.Reema: Any early trends that you are spotting and finally if you could also tell us which stocks would you recommend a buy on at current levels?A: Early trends in that sense we had been pushing two wheelers and commercial vehicles (CVs) and we believe that two wheelers with the monsoon coming in probably will do well. Though this month has been a little bit lacklustre for Hero MotoCorp but rural benefits should come in the second half. So, that is one stock which we like in terms of two wheeler space and the second one which we already discussed is probably Tata Motors and Ashok Leyland as well. Given that CV recovery cycle is yet to play out so we believe these momentary blips probably would be an opportunity to buy. There has been some slowdown which we saw this month but from an overall cycle perspective CV cycle is yet to stay.Reema: You won't worry that Hero MotoCorp is conceding market share?A: Yes, it has been conceding some market share being an incumbent player it does concede some market share loss which is happening to hero but as long as if it grows at 8-9 percent probably in the line with what we expect for the industry then some market share loss is okay given the fact that in the last two years they have not done any growth in that sense in motorcycles particularly.