Buy Maruti, M&M on dips, says IIFL's Prayesh Jain

In an interview to CNBC-TV18, Prayesh Jain of IIFL evaluated the auto sales figure in November. He feels the sales number of Maruti were better then what the broking firm had expected. He was a bit disappointed with M&M.

However, he believes that the only segment showing strength is the automotives is the passenger car. He advises buying Maruti at slightly lower levels and wait for M&M to correct to Rs 900. Below is the edited transcript of his interview to CNBC-TV18 Q: What have you made of the sales numbers? Any particular reason why you think Maruti and M&M are holding up in the green, because the numbers seem fairly disappointing? A: I disapprove of your understanding that the numbers were disappointing for M&M and Maruti. Maruti. We were expecting around 100,000 plus kind of number and they have delivered around 103,000. It is difficult for the company to reach that 115,000 or 120,000 kind of a number which it had achieved in its previous peak. 103,000-104,000 is a pretty good number and that is what we were expecting. The company may hit its peak production at Manesar unit towards the end of this month and we might see some good volumes in December or January. The volume benefit is there for the entire month. For M&M, the automotive volumes were tad disappointing. However, tractors actually splendid surprise with a 22 percent YoY growth. Although on a sequential basis there is a fall, but if you look at tractor it is more of a seasonal pattern. So, YoY comparison is more important here. They have seen a 20 percent growth there in domestic volumes. That is a pretty healthy sign. Tractor volumes are expected to see a steady growth from hereon. Two wheeler space is weak in the domestic market. In Hero MotoCorp and Bajaj Auto we saw more than 4 percent decline. It did not show very strong numbers. TVS Motors’ volumes were down. So the two wheeler space is disappointing. Even the Medium and Heavy Commercial Vehicles (M&HCV) space, if you look at Tata Motors M&HCV volumes were down 40 percent YoY. The only segment where we are seeing some strength or better performance is the passenger car. Two wheelers and Commercial Vehicles (CV) space is weak. Q: How will you look at the specific stocks whose numbers did not displease you much? Would you be a buyer in M&M, Maruti or any of the four wheeler counters? A: We might possibly be buyers in Maruti at slightly lower levels from the current. We would possibly wait for M&M to correct to Rs 900 before being a hardcore buyer into the stock. If you actually look M&M is the only stock where you see very strong visibility. The base is huge now considering the kind of growth it has seen over the last 12 months or so. So 30 percent growth that people were seeing is difficult to deliver. However, I think 15-18 percent growth is quite achievable for this company and that is pretty visible. In terms of valuations, the stock has run up and the headroom for upside is very limited from hereon. Possibly we might wait for some dips or corrections to buy into M&M. Maruti definitely is a buy from here. We expect the volumes to recover at a steady state in FY14 and given the company’s guidance of increasing the exports that could potentially pull up the volumes more. So, that kind of triggers we see in Maruti as well. Q: Valuation wise are you a buyer in any of the two wheelers? A: Not at current levels. Relatively we like Bajaj Auto, but absolute buys we do not have a recommendation of buy on either of the two stocks.