Kotak Equities upgrades Uno Minda, two smallcap auto ancillary stocks. Here's why
Midcap auto ancillary stock Uno Minda has received a rating upgrade from Kotak Institutional Equities along with two smallcap counters CIE Automotive and Varroc Engineering as the risk-to-reward ratio turns favourable according to the brokerage.
Midcap auto ancillary stock has received a rating upgrade from Kotak Institutional Equities along with two smallcap counters and as the risk-to-reward ratio turns favourable according to the brokerage.Uno Minda's 8% correction in 2024 so far provides a good entry point to investors while attractive valuations in CIE and Varroc make the three counters an 'Add' candidate from Kotak's previous 'Sell' ratings.
Uno Minda: Add | Target: Rs 660
Gurgaon-based Uno Minda which boasts of manufacturing 20 categories of automotive components at its 73 manufacturing plants, globally, has seen its stock fall by 8% this year while its last one year returns stand at 36% which is lower than sectoral index Nifty Auto (68%) and broader Nifty (39%).Kotak has raised the price target to Rs 660 from the earlier target of Rs 625 earlier valuing the company based on DCF methodology with an implied multiple of 35X FY2026E consolidated EPS. "The stock has corrected by 15% since our downgrade and at CMP, we believe risk-reward is favorable," Kotak note said.
Uno Minda is well-positioned to outperform the industry growth due to an increase in premiumisation trend across 2W and 4W segments and strong order wins across segments including EVs. The company is expected to deliver a 15% revenue CAGR over FY2023-27E, this brokerage said.
CIE Automotive: Add | Target: Rs 465
CIE's upgrade comes at attractive valuations. The stock's returns over a 1-year and year-to-date stands at a meager 1.61% and 3.60%, respectively. The target price for this smallcap counter has been increased from Rs 450 to Rs 465. "We expect the company to deliver 13-14% EPS CAGR over the next few years with post-tax RoCE of 14-15% at an attractive FCF yield of 5-6% over CY2024-26E," Kotak note said.
Varroc Engineering: Add | Target: Rs 500
Kotak has revised its target price upwards to Rs 500 from Rs 460. It has increased FY2025-26E EPS estimates by 2-4% on account of higher revenue and other income assumptions. Its returns are best in the pack 76% over a 1-year period and 13% in 2024, so far. "We expect the company to marginally outperform the 2W industry growth driven by ramp-up of EV component business with (higher ASPs) and strong order wins in polymer business," Kotak note said.
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Source: Stocks-Markets-Economic Times
