Jefferies prefers M&M stock over Tata Motors, Maruti Suzuki shares; here's why

Jefferies in a note on auto sector said it prefers Mahindra & Mahindra Ltd (M&M) over Tata Motors Ltd and Maruti Suzuki India Ltd. M&M, along with TVS Motor Ltd and Eicher Motors, is Jefferies preferred 'buy' calls in the auto sector, the brokerage said.

The brokerage said Indian passenger vehicle (PV) OEMs witnessed a wide divergence in volume growth and margin trajectory in Q2. The industry wholesales fell 1 per cent YoY in Q2. It noted that volumes grew 18 per cent for M&M but declined 2-9 per cent YoY for Maruti Suzuki India, Tata Motors, and Hyundai Motor India. EBIT margin was flat sequentially for M&M auto division, but slipped 10-80 basis points QoQ for the rest. 

Also Q2 EBIT grew 21 per cent YoY for M&M's auto division but fell 8-10 per cent YoY for Maruti and Hyundai Motor India and 91 per cent YoY for Tata Motors' India PVs, the foreign brokerage said.

"We like M&M's strong tractor and improving auto franchise; we also believe tractor industry is at the cusp of the next upcycle. We expect strong 13 per cent volume and 19 per cent EPS CAGR for M&M over FY24-27E, and find its 22 times FY26E core business PE attractive. Our Rs 3,700 price target is based on 27 times Sep-26E PE for tractors and auto businesses. MM, along with TVSL/EIM, is our preferred buy in autos," it said.

Jefferies said the competitive landscape has changed meaningfully in recent years, with market shares of the top 2 OEMs (Maruti Suzuki India and Hyundai Motor India) slipping to 12-year lows in H1FY25. M&M, it said, is gaining share with favorable demand shift towards SUVs and new product launches; its PV market share climbed to an all-time high of 12.5 per cent in H1FY25. 

It noted that while Tata Motors' market share rose to an 11-year high of 14 per cent in FY23, it has slipped to 13.3 per cent in H1FY25.