auto stocks outlook: After a swift ride in FY23, will auto stocks maintain speed in FY24 or slow down?


Shares of automobile companies, particularly the four-wheeler makers, registered strong gains in FY23, as the outlook for earnings improved significantly with the strong demand for passenger as well as commercial vehicles.

Mahindra & Mahindra topped the list among 4-wheeler makers, with the stock clocking 40% gains.

Companies such as Maruti Suzuki, Ashok Leyland, and Eicher Motors added about 10-16% gains in the last financial year.

A strong growth in demand for passenger vehicles, particularly premium cars, has aided the earnings growth of four-wheeler makers and also prompted them to scale up capital spending and line up new launches.

M&M saw its passenger vehicles sales surge 59% on year to a record 3,59,253 units in FY23, while Tata Motors reported a 45% growth to 5,41,087 units.

The medium and heavy commercial vehicles segment did equally well for four-wheeler makers.

Tata Motors registered a 39% growth in M&HCV sales in FY23, while Ashok Leyland saw the same surging 68% from the year-ago period.

Compared to 4-wheeler makers, shares of two-wheeler makers had a mixed performance in FY23, as demand did not pick up at the same pace as in the 4-wheeler segment. Moreover, demand was muted for the entry-level segment.

Hero MotoCorp reported a mere 8% growth in sales in FY23 to 53,28,546 units.

Shares of Bajaj Auto have given just 4% returns in FY23, while Hero MotoCorp gave negative returns of 2%.

FY24 View
With the start of the new financial year, the outlook for the overall industry remains positive, with two-wheeler companies expected to see earnings growth recovery.

With companies across segments enhancing focus on the electric vehicle segment, this will likely be a key growth driver in the near term.

While the overall outlook remains positive, the growth rate would be lower compared to FY23 for the automobile sector, primarily due to a high base, analysts said.

Brokerage Emkay Global Financial Services expects the PV industry to grow by 5-7% in FY24.

“MSIL’s (Maruti Suzuki India) growth could be better than the industry’s, mainly because of the launch of products in the SUV segment,” analysts Chirag Jain and Mumuksh Mandlesha at Emkay Global said in their report.

In the two-wheeler space, while the premium segment has seen a good pick, a strong recovery in the rural sentiment is critical and analysts hope for that to come in FY24.

Further, companies are ramping up launches in the electric vehicle space, which augurs well for the segment.

In the 4-wheeler segment, some analysts are very bullish on commercial vehicle makers.

“Commercial vehicles space looks interesting… we see growth coming up in commercial vehicles. So, if you have to evaluate the entire auto play for the stocks from here, then commercial vehicles would remain a top bet,” says Rahul Shah of Motilal Oswal Financial Services.

The ride in FY24 will also be a smooth one for the auto industry, albeit in a slightly slower lane.

(Data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)



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