Auto Q1 Preview: Positive Surprise Seen From M&M, Tata Motors, TVS, But Ashok Leyland May Struggle

Automakers and ancillary companies are expected to show a strong performance in the first quarter of fiscal 2025, led by volume growth in two-wheelers. TVS Motor Co. is likely to post strong numbers while passenger vehicles and commercial vehicle makers try to shake off the flattish volume growth with a strong margin profile.

Within PV makers, M&M and Tata Motors may surprise positively on margins amid new launches expected from both players this year, while Ashok Leyland in the CV category may likely struggle this quarter.

The overall volume growth in two-wheelers within the domestic and export markets has been strong, growing at 21% and 18% year-on-year, respectively.

Most brokerages expect Bajaj Auto to report revenue growth between 14% and 16%, and Ebitda growth upwards of 20%. Nomura expects margin growth to be led by performance-linked incentive benefits and operating leverage, while Motilal Oswal expects 7% volume growth to support financials.

Nomura sees TVS Motor reporting 18% year-on-year revenue growth, led by overall volumes increasing 14% year-on-year. Margins may rise by 40 basis points to 11.8%, led by a better mix. This quarter has been strong for the company, with two-wheeler volumes growing 15% year-on-year, while exports surged 16% year-on-year. EV volumes grew 34% year-on-year.

Hero MotoCorp continues its recovery, and ICICI Securities sees revenue and Ebitda growing by 21% and 37%, respectively, led by 13% volume growth this quarter. The company surprised positively with June sales numbers, which is generally a slow month due to the variable timing of monsoon arrival and delay in kharif crop harvesting, among other factors. Although the absence of wedding dates and heatwaves led to lower footfalls, Hero MotoCorp Ltd. could be one of the strongest results in the two-wheeler space to watch.

Eicher Motors Ltd. is having a slow and disappointing quarter with just 5% revenue and 10% Ebitda growth, according to ICICI Securities. Overall, Royal Enfield’s volumes declined 1%, both annualised and sequentially, led by a decline of 2% year-on-year in domestic volumes. The commercial vehicle business, VE Commercial Vehicles Ltd.—a joint venture between Volvo Group and Eicher Motors—is also expected to be subdued, led by lower sales.

The passenger vehicle space has been abuzz, but not for the right reasons. The PV industry's inventory levels remain elevated, with rising discount levels. In response to weak demand, some PV companies have raised discounts, while others, such as Tata Motors and M&M, have recently announced price cuts on some SUV models to drive growth.

Tata Motor has made price cuts across models such as the Nexon, Harrier, and Safari to the tune of roughly Rs 1.4 lakh, whereas M&M has only reduced the price of the top variant of the XUV 7OO by roughly Rs 2 lakh to Rs 19.4 lakh. During the company's analyst meeting, post-quarter-four results, the management articulated its plan to improve the affordability of the XUV7OO to drive growth.

Nomura is positive about M&M's strategy for driving market growth through launches across attractive price points. The company, in its latest press release after the massive 7% fall in share price post-announcing the price cuts, mentioned that bookings for XUV 7OO have grown by 23% in June 2024 compared to the previous month. Although the price cuts may impact margins by 30–40 basis point in the worst-case scenario, Nomura maintains M&M as their top pick given its potential.

Specifically for the first quarter of fiscal 2025, Nomura sees 18% year-on-year revenue growth, led by 14% year-on-year in auto volumes for M&M, while expecting Ebitda to be around 14.3%. ICICI Securities also expects 15% revenue growth and currently maintains a 'buy' and target price of Rs 3,365 apiece, implying a potential upside of 24%.

Nomura estimates Tata Motors to report revenues increasing 7% year-on-year, with Ebitda margin falling 40 basis points sequentially to 13.8% due to seasonality. JLR is expected to continue its strong performance, while Ebitda margins of 16% are the most positive aspect.

Maruti Suzuki India Ltd. has been in the news with the Uttar Pradesh government's recent regulation on waiving registration charges for hybrid cars. If other states follow suit, Maruti Suzuki could benefit. Nomura expects revenue growth of 7% year-on-year in the first quarter, as volumes are up 5% year-on-year, followed by a favorable mix and price hike.

Nomura continues to predict that industry growth in fiscal 2025 will drop to 4% YoY from the 8% growth in FY24.

CVs saw 8% volume growth during the quarter, albeit on a lower base.

For Ashok Leyland, both ICICI Securities and Nomura expect 7% revenue growth. Nomura believes margins may decline due to sequential operating leverage. Margins have been on an upward trajectory over the last two years, and margins in the lower double digits might be a positive start to this fiscal year. 

Tata Motors has multiple growth drivers in the JLR, CV, and PV businesses. The CV business will propel overall revenue growth while upholding low double-digit margins.

Nomura expects MHCV demand may start recovering in the second half of fiscal 2025 as infra spends starts picking up with election uncertainty now behind us.

Nomura expects M&M, Tata Motors and TVS Motor to surprise positively in the first quarter of fiscal 2025, while Ashok Leyland could fall short of expectations. Among OEMs, they prefer M&M and Bajaj Auto specifically.

ICICI Securities has a 'buy' rating on M&M and an 'add' on Eicher Motors, Maruti Suzuki, Hero MotoCorp and TVS Motors within OEMs.

Motilal Oswal has maintained a 'buy' on M&M, Ashok Leyland, Hero MotoCorp and Maruti Suzuki in OEMs.