UBS and Jefferies list top picks among auto stocks

Jefferies and UBS see opportunities in some Indian auto stocks even as supply-side issues amid ongoing geopolitical tension and rising Covid-19 cases in China threaten to stall a nascent recovery in the sector in the grip of a prolonged slowdown.

Since the start of 2018, the S&P BSE Auto Index has underperformed the Sensex. The auto gauge fell 10%, while the broader benchmark gained 66% over the period.

“This underperformance reflects some of the margin headwinds the sector is facing. We view this correction as a good opportunity for long-term investors to invest in companies with strong fundamentals and catalysts,” he said. said UBS in a report.

Still, UBS cut its EBITDA margin estimates by 60 to 300 basis points on hedged stocks to account for “the sustained rise in commodity prices.”

Domestic original equipment manufacturers for commuter two-wheelers and utility vehicles saw larger cuts, while component companies (excluding tires) saw smaller cuts.

“Despite these cuts, the sector is on track to see significant earnings growth of 36%/39% in FY23/24 with 30%/34% growth in Ebitda due to a base impacted by Covid and a cyclical recovery in demand,” he said.

According to Jefferies, while passenger vehicles posted double-digit growth in FY22, wholesale two-wheeler sales saw the third consecutive year of decline. In commercial vehicles, it was the first cycle year of increasing volumes for trucks, while volumes for tractors fell, the research house said in its note.

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