auto stocks: Top auto stocks to buy ahead of Q1 earnings and as demand recovers

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NEW DELHI: Most analysts are turning bullish on auto stocks as Q1 volumes recover across segments and supply side issues seem to be easing, with an improvement in the supply of semiconductors. Led by rallies in , MRF, Mahindra & Mahindra, Hero Moto and , the Nifty Auto index is up over 8 per cent in the last one month.

HDFC Securities expects M&M to be the best-performing auto company in Q1, with an estimated 41 per cent growth in earnings quarter-on-quarter (QoQ). “This strong performance is likely to be driven by a sharp shift in mix towards its high-margin tractor segment (44 per cent of the total in Q1 from 32 per cent QoQ). Even auto volumes have remained stable QoQ, given the strong order backlog and chip shortage impact gradually reducing,” it said in a report.

Hero MotoCorp is also expected to deliver 10 per cent earnings growth QoQ, largely driven by 17 per cent, QoQ volume growth on a low base, as rural demand has picked up QoQ.

After operating in a head-winded environment for the last three-four years, auto companies are witnessing signs of some emerging tailwinds. “While demand recovery is expected to sustain on a low base, commodity prices have started to moderate, though the benefit might come with a lag. Although fuel prices have moderated from the peak levels, an increase in interest rates could have some impact on demand,” domestic brokerage

said.

It expects 2W/PV/Tractor volumes to register 9.6 per cent/13.5 per cent/7 per cent CAGRs over FY22-25E, while 3Ws/LCVs/ M&HCVs is expected to register 10 per cent/17 per cent/21 per cent.

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Sharekhan expects Q1 to be a moderate quarter with flat QoQ growth and a 30 per cent YoY increase in revenues. “Auto ancillary companies would do well relatively as compared to OEMs, due to revenue diversification and strong traction in EVs and technology business verticals,” it said.

Top picks in auto sector
Motilal Oswal likes and Ashok Leyland among OEMs. Within auto components, it prefers and .

HDFC Securities has BUY ratings on Hero MotoCorp, TVS Motors, and

within OEMs and Bharat Forge within ancillaries. It has ADD ratings for , Maruti Suzuki, and Apollo Tyres.

Sharekhan’s preferred picks include Bajaj Auto, Hero MotoCorp, Tata Motors, M&M, Escorts, Bosch,

, , Mahindra CIE, , , Gabriel India, , and Apollo Tyres

Yes Securities has buy ratings on Tata Motors, Ashok Leyland,

and Sona BLW.

Within the Nifty Auto pack,

has rallied the most – 31 per cent, followed by Bosch (19 per cent), TVS Motor (15 per cent) and MRF (13 per cent).

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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