Among Jefferies 19 top stock ideas for December, there were three auto makers namely Tata Motors, Maruti Suzuki and TVS Motor. Jefferies believes Tata Motors is in the early phase of a multi-year turnaround led by confluence of improved strategy and cyclical recovery. It said the passenger vehicle industry had already suffered its worst downturn before Covid, and is witnessing a strong revival from this low base. It finds Maruti Suzuki valuations no more cheap but still has a buy rating on India’s largest car maker. For TVS, the foreign brokerage said the two-wheeler maker has been improving its franchise across multiple segments with attractive product proposition and felt TVS has been turning more aggressive on EVs. It sees potential for TVS stock valuations to expand going forward.
Tata Motors | Target Rs 540
Jefferies said it likes Tata Motors given the cyclical recovery and improving franchise in India, early leadership in India EVs, and JLR focus returning to higher margin Land Rover models. It noted that Indian truck and PV (passenger vehicle) demand is recovering from the worst downturn in decades, as it forecast a strong 17 per cent volume CAGR over FY22-25E.
Tata has made a strong comeback in PVs with market share rising from 5 per cent in FY20 to 14% in 1HFY23, led by strong SUV focus, better products and an improved brand positioning, it said.
It also noted that Tata Motors has taken an early leadership in EVs in India passenger vehicle space with 80 per cent market share. While a global recession is a risk to JLR, the company is in a strong product cycle with the recent launches of new-gen Range Rover and Range Rover Sport.
By FY25, it sees Tata’s Ebitda becoming 2.6 times of FY22 and EPS exceeding the past peak.
Maruti Suzuki | Target Rs 12,000
Jefferies said Maruti Suzuki’s exports have risen sharply from monthly run-rate of 8,000-9,000 in FY19-21 to 20,000 in FY22 and 22,000 in YTD’23, which is further boosting volumes.
It, however, noted that Maruti’s PV market share has slipped from 50 per cent in FY18-20 to 43 per cent in FY22 led by demand shift to SUVs where it has a weaker presence.
“Its new mid-sized SUV Grand Vitara and the major upgrade of compact SUV Brezza is getting good customer response. MSIL’s new models are feature rich, which should appeal to consumers and help revive market share. On a 3 to 5-year view, MSIL’s SUV and electrification strategy would be key for its franchise,” Jefferies said.
Overall, it expects Maruti’s volumes to rise 60 per cent over FY22-25, which along with margin expansion, should drive Ebitda becoming 3.5 times and quadrupling of EPS over FY22-25E. “Our FY24-25E EPS is 12-21 per cent above Street estimates. MSIL’s 33 times/21 times FY23E/FY24E PE are not cheap, but valuations should sustain amid strong earnings outlook,” it said/
TVS Motor | Target Rs 1,400
Jefferies said the abnormal 35 per cent volume fall in industry over FY19-22 has created a favourable base for double-digit CAGR in coming years, as it pegged a 18 per cent volume CAGR over FY22-25. TVS should be a key beneficiary of Indian two-wheeler demand recovery, it said.
Jefferies said TVS’ market share has risen from 15 per cent to 24 per cent in scooters and from 11 per cent to 14 per cent in 125cc+ motorcycles from FY17 to November 2022. Besides, TVS’ share has increased from 16 per cent to 26 per cent in two-wheeler exports and from 21 per cent to 42 per cent in three-wheeler exports.
Also, TVS is narrowing the gap with peers and increasing its Ebitda share in industry after a long period of subdued margins.
“TVS has been able to manage the sharp rise in commodity costs well through price hikes and internal cost control. A potential weakness in exports could be a slight headwind for profitability; however, we still expect Ebitda margin to
improve to 12 per cent in FY24-25E as Indian two-wheeler demand recovers, operating leverage kicks in and commodity costs ease,” it said.