The auto sector has been seen benefiting from robust rural demand, low-interest rates, a shift in customer preferences toward personal mobility from mass transportation. In the wake of the coronavirus pandemic-led nationwide lockdown, BSE Auto index plunged to hit a 52-week low of 10,141.45 in March, from 19,056 levels. However, from March lows the index has rallied a massive 81.57 per cent to 18,350. In comparison, S&P BSE Sensex has jumped 53 per cent in the same period, clearly underperforming the Auto index. According to the research and brokerage firm Emkay Global Financial Services, the preference shift from public transportation and shared mobility to personal mobility has been positively supporting demand over the past few months. To abide by social distancing norms, people have turned cautious in taking any transport mode that confines them to a closed space with strangers.
Emkay Global Financial Services recommends three auto stocks to buy with potential upside up to 28 per cent. In its latest report, the brokerage firm noted that the domestic two-wheeler sector has been in a downturn since December 2018, and the financial year 2020 has been the worst year for the past 20 years, mainly due to sharp price increases and BS6 transition impact. However, since May 2020 with the unlock phase and pent up demand, volumes have been witnessing a sequential recovery and in August this year, the on-year growth has turned positive. While the key risks include delay in domestic economic recovery, higher competitive intensity and adverse commodity or currency rates.
Hero MotoCorp: Hero MotoCorp is well-positioned to be the key beneficiary of a surge in rural demand, driven by the strong rural presence, dominant market share in Top-7 rural states, and wide distribution network with over 7,200 outlets. Emkay Global expects a 50bps market share gain for the company in FY20-22E. It will take Hero MotoCorp to jump 21.12 per cent to reach the target price of Rs 3,701 apiece pegged by the brokerage.
Eicher Motors: The brokerage firm sees a potential upside of 27.38 per cent in Eicher Motors share price. Its positive view has been underpinned by hopes of market share gains of 80bps over FY20-23E, driven by the focus on new products, including Thunderbird re-launch in Oct’20, re-launch of existing models on the new platform with customisation options, and new launches in 250-750cc segments, and the planned doubling of the domestic distribution network in two years.
Bajaj-Auto: Emkay Global expects volume growth recovery in the domestic two-wheeler sector with 26 per cent growth in FY22 and estimated 8 per cent in FY23. It has pegged a price target of Rs 3,691, which is an upside of 21.15 per cent from yesterday’s close. The near-term volume performance is likely to remain under pressure in both domestic and export markets. “We expect a pick-up by FY21-end, led by replacement demand and a gradual improvement in business and economic activity,” it added.
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