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Electric vehicles to grab market share soon; M&M, Tata Motors, Sona Comstar among top auto stocks to buy – The Financial Express

The Financial Express

Electric vehicles are expected to come charging soon and will likely grab a substantial market share from petrol and diesel vehicles in the next three years. Given this, the shares of companies working in the electric vehicles sector are likely to rally. Analysts at Nomura are bullish on stocks of Sona Comstar, Bharat Forge, Sansera Engineering, Motherson Sumi, M&M, Tata Motors and Ashok Leyland.
The Indian auto industry has been hit by semiconductor chip shortage. Despite this, the market share of electric vehicles in the retail two-wheeler segment increased to around 3.2%. Going forward, the EV market share is estimated to jump sharply to 10% by FY25 on account of more launches and increased capacities, according to Nomura. A potential rise in fuel prices can also accelerate the EV adoption further.
EV share is estimated to jump sharply to around 4%, 8%, 10% in FY23, FY24 and FY25 respectively on account of more launches and increased capacities. A potential rise in fuel prices can also accelerate the EV adoption further. “At the same time, battery cell costs have also been rising. However, OEMs have not raised prices so far due to increased competition. This could further hurt margins if the EV mix were to rise for incumbents, in our view, Nomura said.
Rising electrification and content per vehicle will be key value drivers for suppliers, according to the brokerage. “Within our coverage, we prefer Sona Comstar, Bharat Forge, Sansera and Motherson as our key picks. Among our covered OEs, we prefer M&M, Tata Motors, and Ashok Leyland,” Nomura said.
Sona Comstar: BUY
Bharat Forge: BUY
Sansera Engineering: BUY
Motherson Sumi: BUY
Mahindra and Mahindra (M&M): BUY
Tata Motors: BUY
Ashok Leyland: BUY
Analysts at Nomura highlighted that recent industry and dealer interactions indicate that retail demand has remained subdued, especially in two-wheelers, while passenger vehicle sales have been improving with improvements in chip supplies. However, the demand seems to be skewed towards CNG and new launches, where supply constraints have been impacting sales.” We have been concerned about the weakness in mass segments. We believe a potential rise in fuel prices in March-22 could increase downside risks to our estimates,” it said.
In terms of costs, the Commodity Cost Index has started inching up and is around 50-100bp higher for passenger vehicles and around 150-200bp higher for 2-wheelers currently vs the 3QFY22 levels. Hence, further price hikes may be required in 1QFY23F to support margins if the current trend persists, according to Nomura analysts. Meanwhile, rising electrification and content per vehicle will be key value drivers for suppliers, in Nomura’s view.
Industry retail volumes are likely to remain flat on-year for February 2022. The brokerage expects Maruti Suzuki’s domestic PV volumes to be down 7% on-year. Overall volume is estimated to be flat on higher exports. It expects MM’s tractor volumes to decline 29% on-year on a high base. Overall, PV industry volumes are expected to grow 14% for FY22F and 20% in FY23F.
Nomura estimated industry retail sales to be down around 5% on-year in Feb 2022. “We estimate ~27%/14% volume declines for Hero Motocorp/Eicher and -9%/-12% for TVS /Bajaj Auto. Given the subdued demand, we see downside risks to our estimate of -7%/11% industry volume growth in FY22/23F,” it said.
(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)
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