Auto Stocks Shift Gears: Maruti Suzuki soars on policy boost, M&M, Tata Motors lag; ‘Hybrid’ a must-have, say analysts

Auto stocks like Maruti Suzuki, Mahindra & Mahindra (M&M) and Tata Motors are on investors' radar Wednesday on the back of slew of developments in the industry. While Maruti Suzuki share price rallied over 3% to hit a record high, M&M shares drifted nearly 8% lower along with Tata Motors share price falling more than 2%.

Maruti Suzuki share price gained as the company is likely to benefit from the cut in registration fees for certain vehicles in Uttar Pradesh and West Bengal.

Uttar Pradesh government decided to waive registration fees on hybrid vehicles, bringing them at par with Electric Vehicles (EVs), for three years, leading to drop in on-road prices. Separately, West Bengal has reduced registration fees on CNG cars.

As of FY24, Uttar Pradesh contributes around 11% of Maruti Suzuki’s overall domestic PV sales. Moreover, if a similar move is supported by other states, it would be a strong tailwind for Maruti Suzuki. The company has two hybrid models, Grand Vitara and Invicto.

Analysts believe these developments will improve Maruti Suzuki’s competitive positioning.

“Higher offtake for hybrids would improve Maruti Suzuki’s standing in SUVs (20% market share in SUVs in FY24 versus 65% in non-SUVs), leading to positive rub-off on mix, Average Selling Prices (ASP) and margins. We expect gains to be more pronounced if, similarly, more states/the Centre also rethink their support towards other cleaner technologies besides EVs,” said Chirag Jain, Senior Research Analyst at Emkay Global Financial Services.

According to Phillip Capital’s analysis of new age PV opportunities, hybrid presence or strategies are a must have for front line OEMs.

“We have seen slowing EV demand leading Tata Motors to reduce its estimate of FY30 car industry EV mix to 20% recently. Additionally, given the CAFÉ norms & shift to BSVII in due course, we believe that Mahindra & Mahindra would have to build a hybrid portfolio, considering its non-existence in the CNG space,” Phillip Capital Research Analyst Saksham Kaushal said in a note.

The brokerage firm believes that M&M’s addressable market size would shrink if it does not adopt hybrids. As per Tata Motor’s guidance the industry mix in FY30 should be 20% EV, 5% diesel, 25% CNG and 50% petrol (including hybrids).

“We believe that if M&M does not sell hybrids, its addressable market would be only 20% EV, 5% diesel, and in our opinion 5-10% petrol, having it address only 30-35% of the FY30 car market. And in that scenario, it would need to attain 50% share of the addressable market only to maintain its 11-12% market share, which we believe is a far stretch, and leaving it no option but to adopt hybrids,” Phillip Capital analyst said.

Additionally, he believes that hybrids will blend well with M&M’s portfolio considering its brand image and aura of being a new age mass-premium brand.

Meanwhile, M&M announced a temporary price cut of up to ₹2 lakh for its top XUV700 variant, the XUV700 AX7. Tata Motors has also implemented price cuts on its SUVs, the Harrier and Safari, effective until July 31. The price cuts come amid general softness in underlying demand for PVs.

The overall underlying environment for PVs, including Maruti Suzuki, continues to deteriorate amid slowing retails, decline in order books, rising inventory levels to 60 days, and increasing discounts.

“Further, with the majority of new ICE SUV launches now behind for most of the industry, and small cars yet to show conclusive signs of revival, we believe volume growth for the industry would remain limited to a low-to-mid single digit,” Jain said.

Emkay Global analyst expects M&M to outperform the wider PV industry with double-digit volume growth, backed by new launches (XUV3X0, Thar 5-Door), though trends for existing models remain a monitorable. Tata Motors is also seen outperforming the industry amid upcoming launches like Curvv, though its leadership would be tested by the increasing competitive intensity.

The brokerage firm has a ‘Reduce’ rating on Maruti Suzuki shares with a target price of ₹11,200 per share. It has an ‘Add’ call on M&M shares with a target price of ₹3,000 apiece, and an ‘Add’ rating on Tata Motors shares with a TP of ₹1,050 apiece.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.