In an interview to CNBC-TV18's Anuj Singhal and Latha Venkatesh, Prayesh Jain of IIFL shares his outlook on the major auto companies and their January sales numbers.
Also read: Bajaj Auto Jan sales down 8%, exports growth silver liningBelow is the edited transcript of the interview.
Anuj: A word on Maruti's sales number. That has been the stock in focus all through last week.
A: The numbers were in line with expectations on the domestic front. The worry is more on exports now. They have fallen from a run rate of somewhere around 11,000-12,000 to around 4,500-5,500.
That is worrying us. On the domestic side, the mini-segment has been doing pretty well on a sequential basis. Sequential basis volumes for most of these companies will be better because of the December effect whereby the discounts are higher for the closing models of 2013. Sequentially, the volumes were good. For the rest of the year, the volumes will continue to fall in the region of 5-6 percent and even for the first half, we expect a similar trend. It is only in the second half of FY15 where we expect a recovery.
Latha: So what is the call on Maruti?
A: We have a buy rating on Maruti. We will start factoring in FY16 whereby we are expecting a much stronger recovery by then. For that matter, the margins for Maruti are expected to improve from the current levels.
In those terms, the earnings trajectory is likely to be on an upward trend. FY15 might not be a very strong growth, but FY16 could be a little bit stronger growth and we have Rs 120 EPS estimate for FY16. So, on that terms, the valuations are pretty fair and we have a target price of around Rs 1,870 on that stock.
Latha: Bajaj Auto numbers came in today, 3.18 lakh units versus 2.97 lakh in December. What have you made of the numbers?
A: The numbers are actually good. Bajaj Auto over the past few months had been reporting weak set of numbers, especially its Discover brand. The company had guided in the recent Q3FY14 conference call that the volumes could recover from the Discover pack and that seems to be reflecting in this month's number.
Anuj: What about TVS Motor? That has had a big rally now. Numbers of course look quite okay, but at this price would the stock be a buy?
A: The main valuation rerating for TVS Motors has happened for the volume trajectory. It has been reporting good set of volumes for past few months now.
Now, for further upsides from current levels for TVS Motors, I think they have to work on the margin front. They have been reporting 6 percent kind of levels for the past many quarters in spite of showing decent recovery in volumes. So, that is something the company has to work on and even a 1 percent improvement of margins can substantially add to their bottom-line and that can narrow down the valuation gap between the market leaders with the likes of Bajaj Auto and Hero MotoCorp and TVS Motors. We currently have a market performer rating on that stock.
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