Headed for rise or fall? Here are 7 experts on how the auto space is headed in the next 6 months

While pent-up demand is coming down and the sector is facing rising interest rates and further price hikes are expected to drive exports; However, with the earnings season underway, margins are expected to improve on the back of lower commodity prices and higher commodity prices.

“Over the last three financial years the sector witnessed muted or negative growth in demand due to general economic slowdown weakening as mobility was restricted and incomes were low for buyers during the pandemic. To add to this the transition to prices has been on the rise The cost of ownership of vehicles increased due to BSVI emission norms, and increase in crude oil prices, increase in insurance, and high inflation. Further headwinds piled up as supply shortfall due to disruptions , and semiconductor shortages hit vehicle production. Supplies are now rising, with companies reporting large order books due to the availability of semiconductors, and multiple model launches by OEMs, which should drive sales in 2024,” Anil Rego- Explains the Founder and Fund Manager, Right Horizons PMS.

Let us take a look at how 7 analysts expect the auto sector to perform in the first half of 2023:

1) saji johnResearch analysts at Geojit Financial Services see a mixed view of the sector, with pent-up demand easing, and SUV-driven growth being fueled by multiple launches. He further said that the demand for premium two-wheelers remains stable as the rural mood is improving due to better harvesting and exports, even as export sales are down. Meanwhile, the penetration of EVs and scooters in the urban market is witnessing order build-up.

In addition, the heavy CV segment is growing well due to a low base and increase in economic activities, construction projects and cement consumption, highlighted John. Positively, earnings season is on the way and margins are expected to improve due to reduction in commodity prices and increase in prices, however, they believe keeping an eye on the economy against the backdrop of high inflation and interest rates important, which is to be expected. For medium future development. Overall, John maintains Neutral rating on the sector with a Positive outlook on CV in the short to medium term.

he is positive M&M’s, Ashok Leyland And Eicher Motors in the auto space.

2) Aniket MhatreInstitutional Research Analyst, HDFC Securities also believes that the first half of 2023 is likely to be a mixed bag for the auto industry.

On one hand, demand from the sector remains at risk due to high inflationary pressures, rising interest rates and the upcoming RDE norms expected to be implemented from April 2023. On the other hand, OEMs are likely to benefit from softening input costs, which would help cushion some or a major portion of the above adversities,” he pointed out. In this scenario, Mhatre believes that a strong product Companies with a pipeline will be able to outperform the market and emerge as major beneficiaries of a softer commodity cycle.His top picks are for the sector TVS MotorsMahindra & Mahindra, and Maruti Suzuki,

3) silent usher Fundamental Analyst, Religare Broking has a more bullish view on the auto space. He expects auto stocks to bounce back in 2023, on the back of government’s focus on infrastructure like roads etc., rising demand for SUVs and EVs, availability of credit and rising income levels will help in driving volumes for companies. Besides, new launches in the SUV segment, better realizations and fall in raw material prices will support growth and improve margins, Asher said. He expects passenger and commercial vehicle companies to do well and are his top picks M&M, Maruti Suzuki and Ashok Leyland.

4) Ram Kalyan Meduri– A SEBI-registered investment advisory firm also expects auto stocks to do well in the next 6 months, especially those catering to the EV space. It added that the two-wheeler industry in particular will give a boost to exports and will be further supported by increased demand generated by a growing economy.

5) Anil Rego– Founder and fund manager, Right Horizons PMS, expects this sector to be one of the top performers in 2023

“We are bullish on OEMs (Original Equipment Manufacturers) with multiple model launches, strong order book and healthy operating cash flows. Demand is expected to grow rapidly in CV and PV segments, and profitability to improve due to moderation in commodity Expected to be.” The capex announced by the companies will sustain the growth, and hence we expect the sector to be one of the top performers in 2023,” he added.

He expects CV domestic segment volumes to pick up, driven by materialization of replacement demand, recovery in the manufacturing industry and healthy demand from the infrastructure segment. He said demand for models in the EV segment, improvement in rural sentiments supported by regular monsoon and increase in minimum support price (MSP) of crops are expected to drive two-wheeler sales.

6) Vineet Bolinjkar Head of Research – Ventura Securities is also positive on the space. They are expected to do well in the high-end 2W market (350+ cc motorcycles) as compared to the economy and mid-size segments (100-200cc motorcycles/scooters). Eicher Motors is the only listed company in this segment and it generates better EBITDA margin of 23-24 per cent than earlier. Bajaj Auto (16-17 per cent), TVS Motor Company (12-13 per cent) and Hero MotoCorp (11-12 per cent), he pointed out.

Owing to its distinctive product portfolio and better margins, Eicher Motors Bajaj Auto commands a premium valuation of 20.3 FY25 P/E as compared to 15.3X and the valuation gap is likely to persist, Bolinjkar said.

Meanwhile, in the CV space they expect Ashok Leyland (FY25 P/E 16.5X) to outperform driven by increased demand for trucks from the infrastructure and construction segments. They’re Bullish in the PV Space Maruti Suzuki (FY25 P/E of 18.0X) on account of recent launch in UV segment which is expected to increase the revenue and profitability of the company in near future.

Growth in the auto OEM space is expected to increase the order book for ancillary players, especially those that are EV agnostic, such as Jamna Auto (18.0X FY25 P/E), Minda Corporation (14.7X FY25 P/E), endurance tech (20.4X FY25 P/E), Sundaram Fasteners (22.1X), he adds.

7) Aditya Velekar, Senior Research Analyst – Metals, Mining & Auto, Axis Securities has maintained a positive outlook on the sector for the first half of 2023. However, he expects a more challenging scenario ahead in the form of pent-up demand for FY23 on the low base of FY22. Decreases in segments. In addition, real-time driving emission norms (from April 23), safety norms related to six airbags from October 23, and higher interest rates could create additional challenges for auto OEMs across segments as it increases the cost of acquisition of vehicles. There will be more growth. Added. Velekar expects slower growth in the PV and 2W segments as vehicle prices increase due to regulatory impact. Moreover, with the fall in commodity prices, the headwind of lower raw material costs may disappear in the coming quarters, he added.

“We remain selective and prefer a stock-specific approach to the auto sector in the first six months of 2023. Our top picks across auto OEMs in the next six months Ashok Leyland and Uno Minda,” They said.

Ashok Leyland in CV: (1) CV up-cycle to be sustained in FY24, infrastructure focus in budget may provide support to CV cycle (2) Marketing efforts and success of AVTR range (debut of hydrogen power train) (3 ) At Auto Expo ’23 the company showcased its preparations in different types of power trains: BEV, Fuel Cell EV, Hydrogen ICE, LNG vehicles, Intercity CNG Buses and Electric Truck Boss. The company also showcased a new electric LCV, the IEV (under Switch Mobility). The primary risk could be higher interest rates which limit sales.

Uno Minda in Auto Ancillary: We expect Uno Minda to grow ahead of the industry’s growth. It has exposure to diversified product mix, EV orders and airbag manufacturing.

In the long term, 12 months and above, he likes Maruti Suzuki, TVS Motors and Eicher Motors.

Maruti Suzuki in PV: (1) Strong order book of New Brezza and Grand Vitara (2) New launches at Auto Expo’23: Baleno-based SUV Coupe Fronx and 5-door Jimny SUV gaining market share through Nexa channel To help (3) showcase new powertrains under development – ​​first born electric SUVs Maruti VX and WagonR Flex Fuel. (4) By FY25 for battery cell manufacturing and BEV by parent Suzuki Rs. 10,000 crore capex (5) recently increased in value by 1.1% (~by 10k – 25k across the portfolio except for the Grand Vitara to further increase the ASP per vehicle. (6) Strong marketing reach and distribution network. The primary risk is multiple launches from competitors, which will make the UV space more disordered and competitive in the future.

TVS Motors in 2W: (1) We expect TVS Motor’s focus on premium bikes and EV scooters to give it an edge over its competitors. (2) New launches in the EV scooter space will be major trigger points. The production of TVS i-Qube is expected to reach 25k units per hour in Q1FY24. Major risk: Competition from new-age pure-play EV players.

Eicher Motors: (1) The success of the Hunter 350 and strong RE/VECV volumes, along with premium bikes, fit the premiumization trend in 2W. (2) Strong pipeline of new products starting with the Super Meteor 650 cruiser (at an attractive price point filling the gap left by the Harley Davidson Street 750) to refresh the global product portfolio (3) Strategically important Investment in CKD facilities in markets – Argentina, Colombia, Thailand and Brazil (most recently in Q3FY23). The main risk is cannibalism by Hunter 350, leaving the ASP vulnerable.