A host of auto and auto ancillary sector companies such as Escorts Kubota, UNO Minda, Samvardhana Motherson, Minda Corporation have announce their quarterly results. The numbers have been good, as suggested by brokerages. Motilal Oswal finds Samvardhana Motherson stock reasonably valued. Escorts Kubota is Emkay’s one of the preferred picks in the auto sector.
Samvardhana Motherson | Motilal Oswal | Target Rs 100
Motilal Oswal said Samvardhana Motherson’s December quarter performance beat its estimates, driven by a consistent recovery in auto production in key markets. Easing supply-side issues and receding cost headwinds should drive strong growth and balance sheet deleverage for the stock, it said.
Motilal Oswal said the Samvardhana Motherson stock trades at reasonable valuations at 20.5 times FY24 and 15.3 times FY25E consolidated EPS.
With high operating leverage, reasonable financial gearing and no risk of EVs, Motilal Oswal said Samvardhana Motherson is its preferred pick in the auto component industry. It reiterated its
Buy rating on the stock with a target of Rs 100 based on December 2024-based SOTP.
That said, the brokerage has cut its FY23 and FY24E EPS by 3-4.5 per cent to factor in higher depreciation and a lower profit share from associates.
Escorts Kubota | Emkay Global | Target Rs 2,500
Emkay Global said Escort Kubota’s revenue for the December quarter grew 16 per cent, which was broadly in-line with its estimates. Ebitda for the December quarter at roughly Rs 190 crore was 10 per cent below its estimates, due to lower gross margin.
The management, it noted, expects margins to normalise over the next few quarters, owing to better net pricing, commodity deflation, and cost savings.
“Factoring in the lower-margin assumptions, we have reduced our FY23-25E EPS by 1-4 per cent. Following the revision, we expect robust revenue and EPS CAGRs of 26 per cent 41 per cent, respectively, over FY23-25E.
“Escorts remains one of our top sector picks, underpinned by robust medium-term prospects, backed by: enhanced market presence in the domestic agri machinery market, with expansion of the product portfolio, especially in wet-land tractors and farm implements; improved market positioning in construction equipment on widening of the product portfolio and increased exports by leveraging Kubota’s global distribution network,” it said.
UNO Minda | Anand Rathi | Target Rs 763
Anand Rathi said a strong growth in retail off-take for automobiles in the December quarter led to robust top-line performance for Uno Minda. Orders from EVs continue to build up for different products, it said adding that the content per vehicle is expected to improve on the strong order book across applications.
“With expected recovery in two-wheeler OEMs, we expect Q4 to be better. Accordingly, we maintain a Buy at a higher target of Rs 763 (35 times FY25 earnings),” Anand Rathi said.
The domestic brokerage said that the December quarter FY23 margin expanded 54 basis points sequentially to 11.6 per cent. While raw material costs cooled, margins were hit by high gas prices overseas (Clarton).
“We believe the domestic business would aid margins as RM prices go down; accordingly we expect operating leverage-led margin expansion. Hence, we expect margins of 12 per cent in FY24 and FY25,” it said.
Net-net, the brokerage expects a 26 per cent revenue growth compounded annually over FY23-25, and 38 per cent growth in earnings, leading to EPS of Rs 21.80.
Minda Corporation | Elara Securities | Target Rs 326
Elara said Minda Corporation’s Q3 revenue surged 45 per cent YoY but fell 7 per cent sequentially to Rs 1,070 crore, as estimated. Ebitda margin dropped 10 bps sequentially to 10.7 per cent, led by higher employee-sales cost, it said. Profit for the quarter improved 41 per cent YoY Rs 52.30 crore
Minda Corporation, Elara said, has the first-mover advantage in EV products, as it supplies to all major EV two-wheeler firms and has secured orders from international companies as well.
“We are closely monitoring its order wins in the wiring harness segment and its path to localise content, which should increase segment margin to 10 per cent in the upcoming two years from 7 per cent currently. Minda is investing in the right areas to capitalise on the LACE megatrend in the auto industry. We are watchful of inorganic activities in this space. With most of the capex cycle behind us, we expect FCF at Rs 230 crore in FY23E-25E,” it said.
This brokerage expects Elara expects revenue CAGR of 26 per cent in FY22-25E and an Ebitda CAGR of 34 per cent. Elara said it is impressed by Minda Corporation’s consistent margin performance.
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