Elara Securities has offered a fresh perspective on the Indian automobile sector, affirming 'Buy' ratings for key players like Maruti Suzuki India Ltd (MSIL), Mahindra & Mahindra Ltd (M&M), and Eicher Motors Ltd. The brokerage also holds an 'Accumulate' stance on Tata Motors Ltd, Bajaj Auto Ltd, and TVS Motor Company Ltd, while flagging Tata Motors Passenger Vehicles Ltd and Ashok Leyland with 'Reduce' calls. Despite recent fuel price increases, Elara projects potential upsides of up to 42 percent for several auto stocks.
Fuel Prices and Sales: A Closer Look
A primary concern among auto investors revolves around whether the current rise in fuel costs and commodity-driven price hikes could trigger a downcycle in the sector, following strong growth in H2FY26. Elara Securities notes that historical data shows only a weak direct correlation between fuel price movements and sales volume growth, typically around 0.2-0.3 times.
The brokerage emphasizes that the sector's cyclicality is influenced by a complex interplay of factors, including fuel and product price inflation, interest rates, rainfall patterns, and total cost of ownership (TCO) dynamics. These drivers impact two-wheeler (2W), passenger vehicle (PV), and commercial vehicle (CV) segments differently.
Drawing parallels with the H2FY19-FY20 downcycle, which saw retail demand decline due to insurance cost hikes, the NBFC crisis, fuel price increases, and ABS/CBS cost additions, Elara believes the current market situation is significantly more robust. Consequently, they do not anticipate a slowdown of similar magnitude.
Elara's Outlook and Projections
Elara Securities assesses a favorable risk-reward balance for passenger vehicle and two-wheeler firms. Even in a bear-case scenario, where mid-single-digit volume declines are factored in, the projected stock price downside is only 10-20 percent. Conversely, base and bull cases suggest potential upsides ranging from 20-80 percent.
For the commercial vehicle (CV) segment, however, the risk-reward profile is higher, with a bear-case scenario assuming a 15 percent volume decline in FY28E, leading to a potential stock price downside of 30-40 percent. Elara's top picks in the sector remain Eicher Motors, TVS Motor, Maruti Suzuki, and M&M.
Volume Growth Scenarios (FY26-28E)
Elara's projections outline both base and bear case scenarios for volume Compound Annual Growth Rate (CAGR) across different segments:
- Base Case:
- PV growth CAGR: 6 percent
- Two-wheeler CAGR: 7 percent
- MHCV CAGR: 3 percent
- LCV CAGR: 5 percent
- Tractor CAGR: 1 percent
- Bear Case:
- PV CAGR decline: 3 percent
- Two-wheeler CAGR decline: 3 percent
- MHCV/LCV CAGR decline: 8 percent
- Tractor CAGR decline: 10 percent
Top Picks and Target Prices
Based on their analysis, Elara Securities has set the following target prices for key auto stocks:
- Maruti Suzuki India Ltd (MSIL): Rs 16,546
- Mahindra & Mahindra Ltd (M&M): Rs 4,367
- Bajaj Auto Ltd: Rs 12,020
- Eicher Motors Ltd: Rs 9,001
- TVS Motor Company Ltd: Rs 4,173
- Tata Motors Ltd: Rs 423
- Tata Motors Passenger Vehicles Ltd: Rs 354
- Hero MotoCorp Ltd (HMCL): Rs 5,800
Disclaimer: This report is for informational purposes only and should not be considered investment advice. Investors are encouraged to consult with a qualified financial advisor before making any investment decisions.