Tata Motors, Maruti Suzuki, M&M, Hero Moto, AL: Auto stocks that analysts like ahead of Aug sales data

August is a seasonally lean month for retail sales and inquiries but dealers are quite optimistic over the 10-day long Onam festival, which is underway. Dealers said there is a continued preference for new launches even in entry-level segments. New models would help OEMs gain traction in sales, Sharekhan said, adding that an early Onam festival in 2023 is seen triggering retail sales towards the end of the month.

The 10-day long Onam festival is in August in this year against September in the previous year. Shaekhan said dealers in certain southern states are enthusiastic for an uptick in retail sales during an auspicious occasion of Onam, as OEMs are also supportive for demand generation via special offers for Onam.

“Further, dealers have not observed a material change in retail sales trend in August compared with July in most of regions but are optimistic for upcoming big festivals - Dusshera and Deepawali in Q3FY24," Sharekhan said.

Sharekhan prefers stocks such as Ashok Leyland, Tata Motors, Hero MotoCorp, M&M and Maruti Suzuki.

Motilal Oswal prefers commercial vehicle (CV) segment over other segments, led by strong demand and a stable competitive environment.

"We prefer companies with higher visibility in terms of demand recovery, a strong competitive positioning, encouraging margin drivers, and a strong balance sheet. Tata Motors and Ashok Leyland are our top OEM picks," the brokerage said.

Motilal Oswal expects two-wheeler retail for August to improve 4-5 per cent YoY driven by stable urban demand along with gradual recovery in rural market. Its checks suggest urban volume growth has been in the range of 5-7 per cent YoY while rural growth has been 3-5 per cent YoY. In the CV segment, MHCV retail is anticipated to grow 4-6 per cent YoY for the month, as freight demand is likely to improve post-monsoon due to the upcoming festive season. In the PV segment, retail is likely to jump 5-7 per cent YoY propelled by execution of order backlog and moderating supply chain issues.

Analysts noted gradual inventories build for festive season has already been started and barring few products the OEMs are not facing any major capacity constraint so far. Along with OEMs, dealers are indicating that demand for cars with prices above Rs 10 lakh is surpassing demand for cars with prices below Rs 10 lakh.

"We believe that wholesales in August would reflect ongoing retail sales trend and beginning of inventory build-up for upcoming festive season. For August 2023 We expect CV universe to grow by 3.1 per cent QoQ, domestic PV universe to grow by 1.6 per cent QoQ, two-wheeler universe to grow by 7.6 per cent QoQ and rractor universe to grow by 7.7 per cent QoQ," it said.

InCred Equities said that the festive season-led demand recovery provides hope for two-wheeler sales, where it prefers Bajaj Auto. Maruti Suzuki, with strong new products and alternative fuel technology, is better positioned to gain market share in the car segment, it said while suggesting that it has a 'ADD' rating on Mahindra & Mahindra and Ashok Leyland as these segment leaders are gaining market share through new product launches.

"Our order of preference is Bajaj Auto, Ashok Leyland, Mahindra & Mahindra and Maruti Suzuki. The corporate governance concerns in large-cap OEMs like Hero MotoCorp (government inquiry), Mahindra & Mahindra (RBL Bank investment) and Maruti Suzuki (Gujarat plant valuation) are a challenge. We reiterate our REDUCE rating on Tata Motors and TVS Motor, as global operation challenges overrule domestic recovery benefit at their current rich valuations," it said.

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