This week, we look at the stock picks from analysts from automobiles & auto components, and cement & construction sectors.
1. Mahindra & Mahindra:
Motilal Oswal reiterates its ‘Buy’ call on this car and utility vehicle manufacturer with a target price of Rs 2,005, indicating an upside of 17.7%. Analysts Amber Shukla and Aniket Desai believe that headwinds like a weaker monsoon made for a challenging FY24 for the tractor industry, but they expect FY25 to be better, led by favourable festive timings.
The analysts are also positive about the company’s two new arms, set up to expand its electric SUV and LCV fleets. The company has earmarked an investment of Rs 10,000 crore for these electric vehicle subsidiaries.
Shukla and Desai remain optimistic on the back of Mahindra & Mahindra’s focus on launching new models and achieving healthy margin growth in its core business. Despite predicting growth moderation in some of its verticals, they say “the company is still better placed to outperform across all its verticals”. The analysts estimate a revenue and profit CAGR of 12.5% and 17%, respectively, over FY24-26.
2. Maruti Suzuki India:
HDFC Securities maintains its ‘Buy’ rating on this car manufacturer with a target price of Rs 12,887, indicating an upside of 23.6%. Analysts Aniket Mhatre and Maitreyee Vaishampayan say, “On the back of its aggressive launch spree over the last few quarters, Maruti Suzuki continues to be the market leader in the utility vehicles segment.” In Q3FY24, the company’s net profit jumped 34.1% YoY to Rs 3,206.8 crore (beating the brokerage’s estimate by 11%), while its revenue increased by 15.3% YoY to Rs 34,509.2 crore.
The analysts note a margin improvement in Q3 by 210 bps to 12.3% (against their estimate of 11.5%), led by lower commodity costs, reduced royalties and positive forex impact. They attribute the decrease in the current order backlog to 215k units (from 250k units in Q2FY24), to the improved availability of semiconductors.
Mhatre and Vaishampayan are optimistic about the company as the management aims to launch 10 new models by 2030, including six EV models. With rising exports and higher plant utilisation, they expect the EBITDA margin to expand by 240 bps over FY24-26.
3. Exide Industries:
ICICI Direct maintains its ‘Buy’ rating on this auto parts and equipment manufacturer with a target price of Rs 380, indicating an upside of 9.3%. In Q3FY24, its net profit grew by 7.7% YoY to Rs 240.3 crore, while its revenue increased by 12.7% YoY to Rs 3,863.3 crore. Analyst Shashank Kanodia says, “The automotive division witnessed a broad-based uptick, showing signs of demand recovery, while the industrial segment benefitted from large investments in sectors such as renewables, telecom, and infrastructure.”
Kanodia is optimistic as Exide has an early-mover advantage in the new-age lithium-ion battery business, highlighted by its joint venture (JV) with Leclanché SA (an energy storage solutions provider). This JV aims to set up electric vehicle battery assembly operations with a capex outlay of Rs 6,000 crore for a 12 GWH capacity, expected to be operational in CY25. However, the company faces competition from other established and new players in this space, such as Amara Raja Energy.
Kanodia believes that the firm is an industry leader in the lead-acid battery space. He expects steady growth in this segment in the near-to-medium term, driven by healthy auto OEM sales, increasing industrial use, and export opportunities. The analyst projects margin expansion of 12.5%, up from the current 11.5%, if raw material prices remain stable.
4. Larsen & Toubro:
BOB Capital Markets maintains its ‘Buy’ rating on this construction and engineering company with a target price of Rs 4,200, indicating an upside of 25.7%. In Q3FY24, its net profit grew by 15.5% YoY to Rs 2,947.4 crore, while its revenue increased by 18.7% YoY to Rs 55,965.6 crore. Analysts Vinod Chari, Swati Jhunjhunwala, and Arshia Khosla say, “The company posted a strong order inflow of Rs 76,000 crore in Q3, driven by infrastructure and hydrocarbon projects.”
Larsen & Toubro has increased its FY24 order inflow and revenue growth guidance to 20% and the high teens (17-19%), respectively, as it ended 9MFY24 with a record order book of Rs 4.7 lakh crore.
Despite a 50 bps YoY dip in EBITDA margin to 10.4% in Q3, which dragged the YTD margins to 7.5%, the management expects to complete all legacy orders this year and has guided for an FY24 EBITDA margin band of 8.3-8.5%. It also predicts sequential margin improvements over the next four quarters.
5. Shree Cements:
Axis Direct upgrades its rating on this cement products manufacturer to ‘Buy’ with a target price of Rs 31,470. This indicates an upside of 16.8%. In Q3FY24, the company’s net profit grew by 148.8% YoY to Rs 701.9 crore, while revenue increased by 20.1% YoY to Rs 5,370.6 crore. Analysts Uttam K Srimal and Shikha Doshi say, “Shree Cements posted robust results, exceeding our expectations, due to better demand in its operating regions and higher realizations from higher merchant power sales.”
The company’s EBITDA margins have improved to 25%, and the analysts expect it to improve further on the back of a better product mix, higher sales of premium products, brand-building exercises, and cost optimisation. They believe the company's capacity expansion move will allow it to compete with its larger peers and strengthen its market presence. They expect volume growth of 10% CAGR over FY24-FY26, and remain bullish on the cement demand, thanks to infrastructure and housing investments.
Note: These recommendations are from various analysts and are not recommendations by Trendlyne.
(You can find all analyst picks here)
