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Tata Motors, Maruti Suzuki favored amid Indian auto sector's mixed recovery

EditorMalvika Gurung
Published 25/10/2023, 05:00
© Reuters.

Indian auto sector's gradual post-pandemic recovery continues to unfold with varied sales volumes results in Q2 FY2024. Three-wheeler sales have seen a significant year-on-year recovery, and passenger vehicles have experienced mid-single-digit growth. In contrast, two-wheeler sales recorded a slight decline on a YoY basis.

In the market share dynamics, Bajaj Auto and Honda (NYSE:HMC) Motorcycle & Scooter India lost in the two-wheeler segment, while TVS Motor Company and Suzuki gained. In the passenger vehicle segment, Maruti Suzuki, Mahindra & Mahindra, and Toyota (NYSE:TM) gained market share, whereas Tata Motors (NYSE:TTM) and Kia experienced losses.

Most companies are projected to witness robust double-digit year-over-year revenue growth due to substantial volume growth last quarter and operational efficiency. Analysts suggest this growth has allowed companies to leverage a favourable product mix. However, Bajaj Auto and Hero MotoCorp Limited are exceptions to this positive outlook.

BNP Paribas (OTC:BNPQY) analysts expressed optimism about Tata Motors' profit margins due to strong Jaguar Land Rover (JLR) sales. However, they hold a pessimistic outlook for the two-wheeler sector due to persistently low growth and the disruptive influence of electric vehicles (EVs).

The analysts prefer passenger vehicle OEMs like Maruti Suzuki, Mahindra and Mahindra, and globally-oriented companies like Tata Motors due to their disciplined pricing strategies.

The price targets for select stocks have been increased considering recent demand trends, the shift in their valuation basis to September 2024, and the inclusion of valuation related to Hero MotoCorp's financing subsidiary. Maruti remains their top choice among the investments.

For Maruti Suzuki, analysts recommend a "Buy" with a target price set at ₹13,000 based on a price-to-earnings (P/E) ratio of 29 times the estimated earnings per share (EPS) for September 2025. The target multiple is based on the five-year average next twelve months (NTM) P/E, as per Bloomberg consensus estimates.

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Mahindra & Mahindra also received a "Buy" recommendation with a target price of ₹1,905. The valuation includes a sum-of-the-parts (SoTP) approach, with a target multiple similar to that of Escorts for the Farm Equipment Sector (FES).

Bajaj Auto received a "Hold" recommendation with a target price of ₹4,900. The valuation is based on an SoTP approach using a 16x target multiple for Bajaj Auto's internal combustion engine (ICE (NYSE:ICE)) business in September 2025. Additionally, the value of Bajaj's stake in Pierer Bajaj AG, with holdings in PIERER Mobility AG, is included in the assessment.

Tata Motors has been given a "Buy" recommendation with a target price of 770. The valuation relies on an SoTP method, averaging various valuation methods such as EV/Sales, EV/EBITDA, EV/EBIT, and P/E ratios. The Electric Vehicle (EV) business valuation is based on the last funding round average with a 30% discount.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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