Bullish on TVS Motors among two-wheeler names: Nitin Raheja

In a chat with ET Now, Nitin Raheja, CIO, AQF Advisors, shares his views on auto ancillary.

ET Now: Auto discretionary as a group has made a decent comeback be it Maruti, Hero MotoCorp or for that matter Ashok Leyland, for those who are betting on economic recovery and auto demand to come back, what is the best way to participate? Should one buy into CV stocks, should one buy into four wheeler stocks or one should still stay with two wheeler stocks because that is where numbers are going to be strong?

Nitin Raheja: Our best bet is on TVS Motors. It is because we are seeing a bottom up. Two wheeler stock is big story with scooters and especially the new scooter launch which is driving the big volumes and strong growth numbers for them. We see this huge leverage of costs playing out, margins upside and we really see EPS numbers growing at close to 60-70% for the next couple of years.

ET Now: But the stock already has seen a run up, it has gone from 55 to 145, it is no longer a cheap stock, it is almost a $2 billion market cap company now.

Nitin Raheja: But if you see TVS’s margins, they are a fraction of the margins which Hero Honda or a Bajaj Auto enjoy and as you see volume playing out, the margin upside on a large turnover base would see profit jumps. If you take the next two years, suddenly the valuation does not start to look stretched.

ET Now: What about Ashok Leyland, it has been a performing stock from 15 to 40, it has been a dream chart, it has been a one way ride for Ashok Leyland, it is the clear proxy on CV demand? If indeed Indian economy comes back, CV as a business which is currently a broken down business, will recover surely.

Nitin Raheja: Yes, but as I mentioned what you are going to see in the market right now is, probably, the expectation led rally. Now people are waiting for the numbers to start panning out before these kind of stocks make their next move.