ASK Automotive: HDFC Sec initiates coverage with 'Add'; sees 19% upside

HDFC Securities has initiated coverage on ASK Automotive with 'Add' rating, saying long-term potential will beat near-term volatility. The brokerage said that it sees an upside of 19 per cent

ASK Automotive share price: Domestic brokerage firm HDFC Securities has initiated coverage on ASK Automotive with an 'Add' rating, citing long-term growth drivers even as near-term volatility persists. 

 

The brokerage has set a target price of ₹480, valuing the company at 22x March 2028 EPS. The target implies an upside of 19 per cent from the previous close of ₹405.25.

 

Meanwhile, ASK Automotive shares on Wednesday gained 2 per cent to trade at ₹414 in early morning deals.

 

According to HDFC Securities, ASK Automotive's long-term business potential remains intact on the back of increasing content via 2W premiumisation and electrification. The company is well placed to benefit from such structural trends, and these trends increase the value of components per vehicle. Electric two-wheelers offer 30-40 per cent higher content compared to internal combustion engine (ICE) models. 

 

The brokerage expects margin expansion from FY28, supported by increased focus on exports and planned exit from the low-margin wheel assembly business.

 

Notably, the company is ramping down the lower-margin wheel assembly business and is seeking to exit it completely at some point over FY27-FY28. 

 

"We expect the reduction of the low-margin wheel assembly business to only partially negate the higher raw material cost-led margin contraction in FY27. Beyond that, in FY28, margin expansion will be supported by improving economies of scale, complete exit from the wheel assembly business, an increase in exports, and cost savings from solar power usage," it said.

 

The brokerage, however, said that near-term headwinds could impact the company's performance. Rising raw material costs, along with geopolitical tensions, could slow the demand, thus hurting the overall performance. The report also flagged that the implementation of ABS norms could lead to price hikes in the below 125cc segment, impacting demand for certain braking components, although the overall impact is expected to be manageable.  ASK Automotive, which is a constituent of the Nifty Microcap 250 index, is a leading manufacturer of auto components for the automobile industry. It specialises in advanced braking systems and aluminium lightweight components. The company had made its Dalal Street debut in November 2023.  

      =============================== 

Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.