Top Auto Stocks to Watch: TVS Motor, Hero MotoCorp, and Key Auto Ancillary Picks from Axis Securities

Axis Securities has highlighted TVS Motor Company and Hero MotoCorp as top choices in the auto sector. In the auto parts industry, they favor CIE Automotive, Minda Corporation, and Sansera Engineering.

Q1 Overview – Auto Sector

The companies covered by Axis Securities showed impressive year-on-year (YoY) growth in Revenue, EBITDA, and Profit After Tax (PAT), with increases of 11%, 30%, and 28%, respectively. This outperformed expectations, which were set at 10%, 24%, and 21%. The strong performance was driven by higher average selling prices (ASPs), more sales, a shift toward premium products, cost-cutting measures, and benefits from scaling up production.

On a quarter-on-quarter (QoQ) basis, there was a slight decline in Revenue, EBITDA, and PAT by 4.5%, 4.2%, and 2.2%, respectively. However, this was better than expected declines of about 6%, 9%, and 7%. The dip was mainly due to seasonal factors.

The YoY rise in EBITDA was particularly boosted by cost-saving strategies and stable raw material prices, especially in companies like Hero MotoCorp, Bajaj Auto, Eicher Ltd, TVS Motors, Maruti, and Ashok Leyland. Additionally, EBITDA margins expanded by 207 basis points YoY and 2 basis points QoQ, thanks to higher ASPs from premium products, effective cost control, and stable raw material costs.

Auto Ancillaries

The companies in the auto parts sector also performed well, with YoY growth in Revenue, EBITDA, and PAT at 11%, 10%, and 12%, respectively, beating expectations. This was driven by the trend toward premium products in two-wheelers (2Ws) and passenger vehicles (PVs), stable raw material prices, and effective cost control.

Sansera Engineering, Endurance Technologies, UNO Minda, and Minda Corp all saw significant YoY growth in EBITDA. On the other hand, CIE Automotive and Steel Strips Wheels had flat EBITDA performance, while Automotive Axles faced a 17% YoY decline due to lower volumes in the commercial vehicle (CV) segment.

Q1FY25 Auto Sales and Future Outlook

In Q1FY25, domestic sales for 2Ws and PVs grew by 20% and 3% YoY, respectively, while CVs saw a 3% increase. Tractor volumes remained flat.

For FY25, demand for 2Ws is expected to grow in the low double digits, nearing pre-COVID levels, with rural recovery and premium products boosting sales. PVs are expected to grow moderately YoY, with more people choosing SUVs and more exports. CV growth might be slow in the short term but has a positive long-term outlook, supported by economic growth and infrastructure projects. Tractor growth is expected to be flat to slightly positive, helped by favorable weather and government support.

Margin Outlook and Investment Strategy

Axis Securities expects EBITDA margins to remain stable, with potential improvements from higher product prices and better product mixes. The impact of raw material prices is expected to be neutral to slightly negative. They suggest a “Buy on Dips” strategy for quality stocks due to recent rallies and high valuations.

Top Stock Picks – Auto Sector

• TVS Motor: Axis Securities recommends buying with a target price of ₹2,900, expecting a 10% upside. TVS saw a 15% YoY and 4% QoQ growth in domestic sales in Q1FY25, with strong performance expected to continue. Their electric vehicle (EV) brand, TVS iQUBE, also grew by 34% YoY. The company’s EBITDA margins improved to 11.5% due to cost reductions and a better product mix, despite a higher share of lower-margin EVs.
• Hero MotoCorp: Axis Securities suggests buying with a target price of ₹6,015, expecting a 15% upside. Hero MotoCorp has strengthened its motorcycle lineup and plans to launch new ICE and EV scooters, along with premium motorcycle models. The company aims to capture market share in the premium 2W segment and expand its EV business.

Auto Ancillaries

• CIE Automotive: Axis Securities recommends buying with a target price of ₹650, expecting an 18% upside. CIE’s Indian operations are projected to grow, with a 10% CAGR in revenue. However, the European market remains weak, with a 5% decline in the EU car market. A gradual recovery is expected in CY25.
• Minda Corporation: Axis Securities advises buying with a target price of ₹575, expecting a 10% upside. Minda secured lifetime orders worth ₹2,100 crore in Q1, with EVs making up 25-30% of these orders. The company is expanding its facilities and expects stable EBITDA margins of 11-12% in FY25/26E.
• Sansera Engineering: Axis Securities suggests buying with a target price of ₹1,580, expecting a 6% upside. Sansera has a strong order book and is gaining traction in ultra-high precision components for semiconductor manufacturing. The company plans a ₹450 crore capex for FY25, focusing on EV and non-auto products.