AUTO SECTOR

 

TRANSCEND GLOBAL INVESTMENT RESEARCH 

Investment Committee Report 

Report Date: October 3, 2025 Analyst: Global Investment Research Team Sector: Indian Automobile & Two-Wheeler Sector 

 I. Executive Summary & Investment Recommendation 

Stock	Rating	Target Price (TP)	Upside / (Downside)	Investment Thesis
TVS Motor Company	TBD	INR 3,800	+10%	Premiumization, strong EV pipeline, and market share gains in the 2W segment, driven by new model launches and favorable rural demand.
Mahindra & Mahindra (M&M)	TBD	INR 3,750	+8%	Leading position in the high-growth SUV and Tractor segments. Superior capital allocation and margin expansion from operating leverage.
Bajaj Auto	NEUTRAL	INR 8,800	+2%	Consistent margin profile, but valuation already reflects strong export performance. Near-term domestic growth remains dependent on recovery in the entry-level segment.
Eicher Motors	NEUTRAL	INR 7,200	−3%	Dominant in the premium motorcycle segment (Royal Enfield), but the introduction of new competing models poses a near-term market share risk.
Tata Motors	NEUTRAL	INR 740	−5%	Strong domestic PV/CV recovery and JLR's turnaround are priced in. Global macro uncertainty and high debt levels require a more attractive entry point.

CONCLUDING VIEW: We recommend an Overweight position on the Indian Auto sector, favoring domestic-focused players with strong product cycles and clear market share momentum. TVS Motor and M&M are our top picks, positioned to outperform the sector on volume growth and superior execution. 

II. Sector & Macro Environment Overview 

India Auto Sector: Inflection Point Driven by Domestic Recovery 

• Demand Drivers: The sector is positioned for a cyclical upturn driven by: 

• Festive Season Momentum: Strong channel checks suggest robust retail demand heading into the festive season, supported by improving consumer sentiment. 

• Rural Revival: Expectations of normal monsoon, potential government support (e.g., Pay Commission payouts), and easing of inflation are expected to drive a recovery in the long-languishing entry-level two-wheeler and small-car segments. 

• Policy Support: Potential further Goods and Services Tax (GST) cuts on two-wheelers and small vehicles could provide a significant demand boost. 

• Key Risks: Global economic slowdown impacting exports (particularly for Bajaj Auto), sustained high commodity prices, and slower-than-anticipated rural demand recovery. 

• Outlook: We project a compounded annual growth rate (CAGR) of 9% in industry volumes over the next three years, with premium and SUV segments outperforming. 

III. Company-Specific Investment Thesis 

A. TVS Motor Company: TBD (INR 3,800 TP) 

• Thesis: TVS is the prime beneficiary of the premiumization trend and the accelerating shift to Electric Vehicles (EVs) in the two-wheeler space. 

• Key Drivers: 

1. Market Share Gains: TVS has consistently gained domestic 2W market share, driven by a strong new product cycle (e.g., Raider, Apache) and superior dealer network penetration. 

2. EV Leadership: Positioned as an early mover in the e-scooter segment with the iQube, securing a strong position in a high-growth category. 

3. Margin Expansion: Operating leverage and favorable product mix should drive Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin expansion of +150 bps over FY26-FY28E. 

B. Mahindra & Mahindra (M&M): TBD (INR 3,750 TP) 

• Thesis: M&M maintains structural leadership in high-margin utility vehicles (SUVs) and tractors, coupled with disciplined capital allocation. 

• Key Drivers: 

1. Unmatched SUV Demand: Order book for key models (Scorpio, XUV700, Thar) remains robust, ensuring near-term volume visibility and pricing power. 

2. Tractor Segment Resilience: Dominant market share in the tractor business provides a hedge against potential slowdowns in the auto cycle. 

3. Profitability Focus: Strategic divestment of non-core assets and a focus on core automotive and farm businesses enhance Return on Equity (ROE). 

 

IV. Valuation & Peer Comparison 

The following table compares key financial and valuation metrics for the covered stocks based on next twelve months (NTM) estimates. 

Company	Current Price (INR)	Rating	NTM P/E (x)	NTM P/B (x)	NTM EV/EBITDA (x)	3-Year Rev. CAGR (Est.)	ROE (LTM)
TVS Motor	3,457	TBD	32.0	8.5	18.5	19.5%	27.6%
M&M	3,463	TBD	25.5	6.2	14.0	15.0%	18.3%
Bajaj Auto	8,618	NEUTRAL	28.0	7.0	15.5	13.5%	20.9%
Eicher Motors	7,004	NEUTRAL	34.5	7.8	17.5	16.0%	22.3%
Tata Motors	718	NEUTRAL	18.0	3.5	9.5	12.0%	20.1%
Sector Average	-	-	27.6	6.6	15.0	15.2%	21.8%

Export to Sheets 

Source: TRANSCEND Global Investment Research, Company Filings, consensus data. 

Valuation Commentary: 

• TVS Motor & Eicher Motors trade at a premium NTM P/E, justified by higher projected revenue growth and superior Return on Equity (ROE) for TVS, but Eicher’s premium is partially eroded by competitive risk. 

• M&M trades at an unjustified discount to peers given its sector-leading growth in high-value segments and strong operational efficiency. This presents a compelling valuation opportunity. 

• Tata Motors’ lower multiples reflect the relative volatility of its JLR (Jaguar Land Rover) global operations and higher debt. 

V. Risks & Mitigants 

Risk Factor	Description	Potential Impact on TP	Mitigant/Hedge
Global Macro/Exports	Geopolitical conflicts or sustained high interest rates dampen demand in key export markets (Africa, Latin America) for 2W/3W manufacturers.	↓5% to 15% on Export-heavy names (e.g., Bajaj Auto).	Focus on domestic demand recovery. Hedging export revenues via currency forwards.
EV Competition	Faster-than-expected adoption of EV by new, well-funded entrants erodes market share of established OEMs.	↓10% to 20% on all legacy 2W OEMs.	Strategic alliances, aggressive internal EV rollout plans (TVS & M&M show a strong lead).
Input Cost Inflation	Renewed surge in key commodity prices (Steel, Aluminum, Lithium for batteries) compresses operating margins.	↓5% on EBITDA margins.	Gradual price hikes and strong supplier contracts. Operating leverage from higher volumes provides a buffer.
Domestic Slowdown	Delayed rural recovery or consumer spending fatigue due to persistent inflation.	↓5% on Volume Growth.	Policy stimulus (e.g., GST cuts) and robust demand in the premium/SUV segments (M&M).

This report is for informational purposes only and is not a solicitation to securities. Prices and target prices are subject to market conditions. The information are taken from internet  we are not in a position to verify such information and, accordingly, we cannot accept responsibility for the consequences of any errors or omissions contained in that information.   Again, we cannot accept responsibility for the consequences of any errors or omissions contained therein. Whoever want to buy or sell the shares mentioned in this report should make their own enquiries and evaluations they consider appropriate to verify the information contained in this report and may seek all necessary financial, legal and technical assistance, wherever required. This report is only for educational and information purposes only and does not provide all the information the recipient may require in order to arrive at a decision.