Jefferies prefers two-wheelers, tractors over passenger vehicles, trucks; picks TVS Motor, M&M

In a recent analysis on automobiles and auto parts, global brokerage Jefferies said that, within autos, it prefers 2Ws (two-wheelers) and tractors over passenger vehicles(PVs) and trucks because it thinks the former segments would increase at a faster rate in volume between FY25 and FY27. Their top choices for Indian automobiles continue to be TVS Motor Company Ltd and Mahindra & Mahindra (M&M) Ltd.

With respect to the market share of automakers, the brokerage gave facts stating, among other things, that Ola Electric, which was just listed, is now the top original equipment manufacturer (OEM) of electric two-wheelers (E-2Ws) in India. The company's market share increased from 21% in FY23 to 35% in FY24 and then to 49% in 1QFY25 as a result of portfolio expansion and aggressive pricing. But after that, Ola's E2W market share decreased to 39% in July and then to 33% in August (month-to-date).

In contrast, TVS is on the rise, with a market share of 19% at August MTD compared to 15% in 1QFY25 (it was 19% in FY24). Additionally, Bajaj's market share increased, going from 11%/12% in FY24/1QFY25 to 18% in August MTD. Hero MotoCorp continues to trail behind the competition with a 5% market share in August (1QFY25:3%), while Honda has not yet introduced its first electric vehicle in India, said Jefferies in its report.

Additionally, the global brokerage said that EV adoption will increase gradually. The share of EVs in 2W sales increased from 0.4% in FY21 to 5.4% by 1QCY23, mostly due to increased subsidies and the launch of novel products. The government has, however, cut E2W incentives twice since June 23. As a consequence, the percentage of E2Ws has remained in the 4-7% range for the most of the last 24 months (Aug 24: 6.5%) despite OEMs introducing more affordable vehicles. While the temporary EMPS program is only available until September for six months, the FAME-2 incentive program ended on March 24.

“The contours of the next phase of FAME would be crucial for the pace of EV adoption. We expect share of EVs in 2Ws to rise gradually to 7%/10%/13% in FY25/FY26/FY27 (YTD-FY25: 5.6%),” the brokerage said.

Valuations

TVS Motor Company Ltd

Given the better growth forecast, potential for market share gains, and potential for margin improvement for TVS Motor, the brokerage values TVS at 40x FY26E P/E, which is higher than their target multiples for Hero MotoCorp and Bajaj Auto. A long decline in demand in export markets and India, as well as less than anticipated margin expansion, are the main risks.

Mahindra & Mahindra Ltd

According to the brokerage, the price target is predicated on the FY26E PE of 30x for the automotive and tractor industries plus ₹506/share for the value of the subsidiaries. The main negative risks include weaker-than-expected demand for new SUV launches and lower-than-expected demand for tractors and SUVs.

Bajaj Auto Ltd

In light of the robust demand expectation, the brokerage justified Bajaj's valuation at 30x FY26E PE, which is higher than its historical average trading multiple. The main danger is a prolonged decline in 2W demand in export markets and India.

Hero MotoCorp Ltd

Hero is valued at 22x FY26E PE by the brokerage. The two main negative risks include a prolonged industry slowdown and Hero's market share erosion in Indian 2W.

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