Nomura, a leading investment firm, has released its comprehensive outlook for the Indian auto sector ahead of the Q2 FY27 results, designating Mahindra & Mahindra Ltd. (M&M) and Ather Energy Ltd. as its premier stock selections. The brokerage anticipates strong domestic vehicle sales across most segments, alongside a notable surge in Electric Vehicle (EV) adoption.
Nomura's Top Picks and Share Price Targets
Among original equipment manufacturers (OEMs), Nomura maintains its 'Buy' ratings on several key players. Mahindra & Mahindra is highlighted as a top pick in the passenger vehicle (PV) segment, while Ather Energy leads in the two-wheeler (2W) category. The firm also recommends 'Buy' for Hyundai Motor India Ltd. and TVS Motor Company Ltd.
Nomura has set the following share price targets:
- Ather Energy: Rs 1,926
- Hyundai Motor India: Rs 2,498
- Mahindra & Mahindra (M&M): Rs 4,875
- TVS Motor: Rs 4,594
The brokerage expects Ather Energy to show a slight quarter-on-quarter margin improvement despite cost pressures, while M&M's Auto EBIT (Earnings Before Interest and Taxes) is projected to have grown 32 percent year-on-year.
Strong Domestic Volume Growth and EV Adoption
Q2 FY27 witnessed robust domestic vehicle volume growth across most segments. Medium and heavy commercial vehicles (MHCVs) led the surge with a 34 percent year-on-year increase. Passenger vehicles followed closely at 30 percent, light commercial vehicles (LCVs) at 23 percent, and two-wheelers at 14 percent. Tractor volumes, however, saw a 5 percent decline year-on-year.
A significant trend observed is the continued acceleration of EV adoption. EV penetration for passenger vehicles surpassed 7 percent, and for two-wheelers, it exceeded 11 percent. Nomura predicts this upward trajectory for EV penetration to persist through the second half of FY27 (2HFY27F).
Companies with substantial EV exposure, competitive product offerings, and established EV technology are expected to outperform the industry significantly in 2HFY27F and FY28F. Conversely, incumbents relying predominantly on Internal Combustion Engine (ICE)-led portfolios may face increasing market share pressures as the market shifts.
Commodity Inflation: A Key Headwind
Despite positive growth trends, commodity cost inflation remains a primary near-term challenge, according to Nomura. Elevated prices for crucial commodities and metals have yet to fully impact OEMs, suggesting continued margin pressure in Q2 FY27F. The extent of this impact is expected to vary across different segments.
Commercial vehicles (CVs) and tractors are likely to experience a higher quarter-on-quarter impact on margins. Two-wheeler manufacturers are anticipated to largely pass on these cost pressures, whereas passenger vehicle OEMs may continue to face margin compression due to intense competitive dynamics. Nomura projects an improvement in margin trajectories as price hikes eventually catch up with the commodity cycle.