Auto sector to benefit from post-covid recovery; buy these stocks for as much as 53% returns

Emkay Global believes that the Auto sector remains a key beneficiary of the post-Covid economic recovery and low-interest rates.

Looking back at the third-quarter results of the auto sector, revenue growth for companies have been strong. Domestic brokerage and research firm Emkay Global in a recent note said their coverage universe, except Tata Motors, saw an 18% on-year revenue growth. During the quarter, double-digit volume growth was registered in tractors, PVs and two-wheelers. Although there could be near term pressure from increasing commodity prices, price hikes are believed to offset pressure. Emkay Global believes that the Auto sector remains a key beneficiary of the post-Covid economic recovery and low-interest rates. 

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Stock picks

Eicher Motors

Target price: Rs 3,300

Currently,  the stock trades at Rs 2,503 per share after having fallen 16% since February 8. In the third quarter, Eicher Motors reported an on-year growth in revenue and net profit. EBITDA margin was slightly below the estimates of Emkay Global, on higher-than-expected raw material costs and employee expenses. “We retained Buy with a target price of Rs 3,300, based on 25x/20x P/E for the motorcycle/ CV businesses on FY23 estimates,” the brokerage firm said. This translates to a 31% upside from current levels. 

Atul Auto

Target price: Rs 275

Atul Auto, a three-wheeler manufacturer based out of Gujarat has one of the sharpest upside potential estimated by analysts at Emkay Global. The company is still to recover from the pandemic blow as on-year growth numbers remain negative. However, on-quarter basis, revenue os up 33%, and net profit soared to 60.6% in the October-December quarter. “Led by lower volume and margin assumptions, we reduce our FY22/23 EPS estimates by 26%/4%. We maintained Buy with a target price of Rs275, based on P/E of 10x on FY23E,” the report said. The stock has to jump 51% from current levels to reach the target price.

Maruti Suzuki

Target price: Rs 9,000

The largest automobile manufacturer in India, Maruti Suzuki is also on Emkay’s shopping cart. In the third quarter of the current fiscal year, Maruti Suzuki reported a 13% on-year and 25% on-quarter growth in revenues. Net profit soared 24% from the previous year and 41.5% from the previous quarter. Although EBITDA margins were below the estimates of Emkay Global. EPS has been raised by 8-12% for the financial year 2021 to 2023, owing to higher volume assumptions. The target price of Rs 9,000 per share, implies an upside potential of 29% from current levels. 

(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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