Auto Sector Q1 Earnings: Tata Motors, Maruti Suzuki, TVS, Eicher Lead as Top Stock Picks by Yes Securities

Earnings in the automobile sector for the April-June quarter of FY25 were mostly in line with expectations, showing an 11% year-on-year revenue growth (excluding Tata Motors). This growth was driven by both increased sales volumes and higher average selling prices (ASP).

Operating Margins

The operating margins of auto companies covered by Yes Securities improved by 190 basis points year-on-year to 14.6% (excluding Tata Motors) and by 150 basis points to 14.5% when Tata Motors is included.

Yes Securities expects gross margins to remain stable or slightly decrease due to steady raw material costs. However, the impact of recent price hikes and a favorable product mix should positively affect the second quarter of FY25.

Outlook for Two-Wheeler Market

The outlook for the two-wheeler market remains positive for FY25, with most manufacturers and suppliers expecting high single-digit to double-digit growth. This optimism is partly due to the low base from the previous year and signs of rural demand recovery, with urban markets maintaining their momentum. A likely normal monsoon could further boost sales during the festive season.

Passenger Vehicle (PV)

However, growth in the Passenger Vehicle (PV) and Commercial Vehicle (CV) segments is expected to slow, with only flat to mid-single-digit growth anticipated. Tractor sales are projected to grow in the mid-single digits, thanks to a normal monsoon that should ease concerns about declining water levels in key western and southern markets.

Key factors influencing future volumes include rural recovery, especially in the entry-level segment, new product launches (particularly in PVs and two-wheelers), and the potential for mandatory vehicle scrappage. Yes Securities forecasts the two-wheeler industry to grow by 8-10% year-on-year, PVs by 6%, CVs by up to 3%, and tractors by up to 5% for FY25.

Top Picks in the Auto Sector

Yes Securities favors two-wheelers over four-wheelers due to improving rural demand, leading to a broad-based recovery in the domestic market. The firm also expects the CV, PV, and Tractor cycles to moderate in FY25.

Recommended Auto Stocks:

• Eicher Motors: Buy | Target Price: ₹5,307
• Tata Motors: Add | Target Price: ₹1,240
• Mahindra & Mahindra: Add | Target Price: ₹3,404
• Maruti Suzuki: Add | Target Price: ₹14,682
• Ashok Leyland: Add | Target Price: ₹271
• Hero MotoCorp: Add | Target Price: ₹5,821
• Bajaj Auto: Add | Target Price: ₹10,532
• TVS Motor Company: Add | Target Price: ₹2,706