Auto shares in fast lane; Tata Motors, M&M, Maruti Suzuki hit 52-week highs

Shares of automobiles companies were on a roll on Friday with top three firms Maruti Suzuki India, Tata Motors, and Mahindra & Mahindra (M&M) hitting their respective 52-week highs, and gaining up to 3 per cent on the BSE in the intra-day trade. The spurt comes on expectations of a strong demand and healthy operational performance in the coming months.

At 11:29 am, the S&P BSE Auto index was up nearly 2 per cent, hitting a new high of 34,862.77 in the intra-day trade. In comparison, the S&P BSE Sensex was up 0.7 per cent at 64,378. So far in the calendar year 2023, the auto index has rallied 20 per cent, as compared to 5 per cent rise in the benchmark index.

Among individual stocks, M&M hit a record high of Rs 1,440.75, up 3 per cent on the BSE. The stock surpassed its previous high of Rs 1,420, touched on June 7, 2023.

In FY23, the company’s operating income rose by 47 per cent year-on-year (YoY) to Rs 84,960 crore over a low base, coupled with a strong growth in auto volume. Volumes, particularly in the utility vehicle (UV) segment, grew by nearly 60 per cent owing to launches and easing of chip shortage. Given the increase in volume, operating profit before depreciation, interest and tax grew to Rs 10,442 in FY23 from Rs 7,027 crore in the previous fiscal. The earnings before interest and taxes margin in the auto segment grew at a healthy pace to ~6 per cent in FY23 from 3.55 per cent in FY22 given the continued price hikes, structured cost reduction program and better operating leverage.

CRISIL Ratings expects the auto segment to continue to report healthy volume given the strong order book of the launched models, including Scorpio N and XUV 700, and Thar. Furthermore, M&M is expected to add new models, including XUV-400 (electric sport utility vehicle launched in January) and vehicle refreshes.

"Tractor volume growth is expected to moderate in FY24 given the high base yet remain healthy, aided by a strong rural economy. Operating margin should be supported by easing commodity inflation and multiple price hikes taken by the company," the rating agency said.

Meanwhile, shares of Maruti Suzuki India (MSIL) gained 3 per cent, hitting a 52-week high of Rs 9,816 in the intra-day trade. The stock surpassed its previous high of Rs 9,801.40, touched on June 7, 2023. It had hit a record high of Rs 10,000, on December 20, 2017.

Analysts at ICICI Securities have retained 'BUY' rating on MSIL tracking its strong intent to outpace industry growth, going forward, reignited focus on SUVs, market share gain ambition (~50 per cent), clear timeframe for EV launch and robust order book.

That apart, shares of Tata Motors hit a fresh multi-year high of Rs 597.90, up 2 per cent in the intra-day trade today. In the past four trading days, it has gained 7 per cent as Tata Technologies received market regulator Securities and Exchange Board of India's (Sebi's) approval to raise funds through initial public offering (IPO). The stock of the Tata group automobile company was trading close to its record high level of Rs 606, touched on February 3, 2015.

Analysts at ICICI Securities maintain 'BUY' on the stock with a target price of Rs 700 per share, tracking profitability at the helm in domestic CV & PV business (including EVs), Jaguar Land Rover’s (JLR's) progressive volume recovery on the anvil, reiterated commitment towards EVs & healthy FCF generation.

Meanwhile, brokerage firm CLSA has raised Tata Motors' earnings forecast for financial year 2024 and 2025 by 11 per cent and 18 per cent, respectively, led mainly by higher margin estimates for its UK-unit JLR and its Commercial Vehicles business.