Tata Motors, Maruti, M&M, Hyundai shares: Fresh price targets amid auto sector underperformance

InCred Equities is disappointed with the sharp 14 per cent correction seen in the Nifty Auto Index in the past three months. The underperformance of Nifty Auto index against Nifty was sharper than InCred expectations, as nearly 88 per cent of its coverage auto stocks missed December quarter Ebitda estimates, with the only outliers being Ashok Leyland Ltd and Hero MotoCorp Ltd. Earnings upgrade is scarce, the broking firm said, as it retained 'Neutral' stance on the auto sector with select stock rating upgrades.

InCred Equities upgraded Bajaj Auto Ltd in the OEM space and Samvardhana Motherson International or SAMIL in the auto component segment to an 'Add' rating. It maintained its estimates for Maruti Suzuki India Ltd, Ashok Leyland Ltd, and Balkrishna Industries Ltd.

Hero MotoCorp is its preferred OEM because of valuation comfort, followed by Maruti Suzuki India Ltd and Ashok Leyland Ltd for volume growth recovery. The brokerage said the forward PE valuation eased below the 10-year mean level, while the ingredients for demand recovery are being sowed in the form of easing interest rates and improved disposable incomes via the recent cut in income-tax rates.

Stock price targets

"We have cut volume estimates across our coverage universe and the only upgrade is in the case of TVS Motor Company. The major volume cut is for Tata Motors. The major Ebitda cut in our estimates is for Tata Motors, Bharat Forge, Maruti Suzuki, Eicher Motors, and Hyundai Motor India. Our FY25F-26F Ebitda upgrade is only in the case of Mahindra & Mahindra or M&M and TVS Motor Company," it said.

On Hyundai Motor India Ltd, InCred Equities said the volume underperformance & market share pressure will prolong and that the rupee depreciation may impact the company's Ebitda margin, given it is a net importer.

"Key Reduce-rated stocks are Tata Motors, TVS Motor Company, and Escorts Kubota due to their rich valuations. In the auto ancillary segment, we have an Add rating on Bharat Forge, Endurance Technologies, and Balkrishna Industries, and a Reduce rating on Bosch, Apollo Tyres, and Exide Industries," the brokerage said.