The Indian commercial vehicle market is showing signs of a potential cyclical recovery, with strong sales figures and positive outlooks from major brokerages. This renewed interest in the sector could be a game-changer for investors looking to capitalize on the upswing.
Brokerage Reports: A Positive Outlook
BofA Securities and JP Morgan have initiated coverage on Tata Motors' CV business with 'Buy' and 'Overweight' ratings, respectively. Both firms have set a price target of ₹475, suggesting a potential upside of approximately 23% from current levels. This optimism is based on the company's steady market share, margin discipline, and a robust return on capital employed (RoCE) of over 35% even through a down-cycle.
Key Drivers of Growth
The bullish brokerage reports are driven by several key factors, including:
- A modest recovery in the CV business after three years of stagnant growth
- Pricing discipline among major players, which has supported margins and RoCE
- The company's Iveco acquisition and balance sheet deleveraging
- Impressive sales data for November, with Ashok Leyland's sales growing by 29% and Tata Motors' CV sales increasing by 29%
Expert Insights
Dipan Mehta, Founder Director at Elixir Equities, believes that the CV industry is poised for growth, with Ashok Leyland being his preferred choice. 'Our preference would be for Ashok Leyland, which has been steadily able to increase market share and has a great export potential as well,' he stated. Mehta also pointed to the company's leadership in new launches and reasonable valuations as factors favouring the stock.
Investment Opportunities
Mehta remains very positive on the CV industry as a whole, noting that its strength is a good indicator of broader industrial, manufacturing, and infrastructure activity. He believes that investors could be overweight on both Tata Motors CV and Ashok Leyland, but reiterated his preference for the latter based on its strong track record. Remember, this is just a perspective, not a prediction. It's essential to do your own research and consider your individual financial goals before making any investment decisions.