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:
- 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.
- EV Leadership: Positioned as an early
mover in the e-scooter segment with the iQube, securing a strong
position in a high-growth category.
- 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:
- Unmatched SUV Demand: Order book for key models
(Scorpio, XUV700, Thar) remains robust, ensuring near-term
volume visibility and pricing power.
- Tractor Segment Resilience: Dominant market share in
the tractor business provides a hedge against potential slowdowns in the
auto cycle.
- 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.