Auto Sector: Festive demand to drive two-wheeler, PV sales growth, says Nuvama; M&M, TVS Motor among top picks

In a recent study on the automobile industry, brokerage company Nuvama Institutional Equities said that dealers of two-wheeler (2W), passenger vehicles (PV), and medium and heavy commercial vehicles (MHCV) indicated high expectations for the upcoming festive season based on their channel checks.

The brokerage has a preference for mass-market 2W Original Equipment Manufacturers (OEMs) and tractor OEMs. Their top picks consist of Escorts Kubota (Target Price: ₹5,000), Mahindra & Mahindra ( ₹3,700), Hero MotoCorp ( ₹6,500), and TVS Motor ( ₹3,200).

The brokerage noted in its research that strong rural demand and ongoing urban demand will drive a 15%+ growth in 2W festive demand. Premium OEM EIM-RE to be surpassed by mass-market OEMs. The brokerage also said that, with replacement demand supporting MHCV demand, PV demand would expand in single digits while MHCV demand would be mild at single digits.

According to the brokerage, the rural portion of the 2W sector was around 55%. This indicates that mass-market OEMs like TVS Motor, Hero MotoCorp, and Bajaj Auto should fare better than luxury OEMs like EIM-RE. The Hero Xtreme 125R and TVS Jupiter are two new models that could help with volumes. In addition, PV growth should be modest, in the single digits, with the backing of rural demand (with a rural proportion of at least 35%).

Nuvama stated that utility vehicles (UV) growth is probably going to reach double digits, exceeding hatchbacks and putting Mahindra & Mahindra and Tata Motors ahead of Maruti Suzuki. Volumes should also benefit from new models like the Tata Currv and Mahindra Thar Roxx. Because dealer stocks were built up in expectation of a busy holiday season, they are high for 2W and PV at 1.5–2.5 months. As replacement demand increases and freight availability keeps becoming better, the demand for MHCVs is anticipated to rise in the single digits.

Valuations

“We believe 2W and tractors are well positioned with volumes likely to grow in high single-digits over FY24–26E, compared with low single digits for PV and CV. We are increasing TP for TVS Motor to ₹3,200 (earlier ₹2,870), factoring in higher volume and margin assumptions, and for Hero MotoCorp to ₹6,500 (earlier ₹6,200), factoring in higher value of investments in Ather Energy/Hero Fincorp at ₹365 (earlier ₹173). In contrast, we are reducing TP for Eicher Motors to ₹4,500 (earlier ₹4,600), on lower volume assumption, for Mahindra & Mahindra to ₹3,700 (earlier ₹3,800) on lower PV volume assumption, for Maruti Suzuki to ₹14,600 (earlier ₹16,000),” said Nuvama in its report.

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