Third-quarter earnings were perfect for auto stocks this week. Tata Motors reported a profit for the first time in two years. Bajaj Auto reported record EBITDA. TVS Motor posted its fifth consecutive quarter of 10% margin growth, while Maruti’s margins improved year-on-year and quarter-on-quarter.
January has been a perfect month for the auto industry regarding stock movements. Tata Motors is up 15%, Bajaj Auto is up 10%, and Mahindra and Mahindra (M&M) is now up 80% from its lows in March last year.
There are many positive triggers, such as a pick-up in demand, fewer supply-side challenges, and lower raw material prices.
Bajaj Auto, Maruti, TVS Motor and M&M, most of these stocks are trading around their historical averages. However, Maruti and TVS Motor have more room for valuation than historical averages. As a result, Maruti is currently trading at 24 times FY24 earnings, compared to its historical average of 26 times earnings.
TVS Motor trades at about 26 times earnings, compared to a historical average of 27-28 times.
Many brokerages also continued to upgrade stocks this week. JPMorgan upgraded Bajaj Auto, UBS raised its target price for Maruti to Rs 12,600, and Jefferies raised its target price for TVS Motor to around Rs 1,550.
Overall, broker ratings have been upgraded, but looking at the entire list, Maruti and TVS Motor have some room for valuation compared to historical averages.