Tata Motors, Bajaj Auto to Ola Electric: Key reasons why HSBC cuts target prices for many auto stocks

Auto Stocks: The earnings performance of most Original Equipment manufacturers (OEMS) is likely to remain muted during the January-March 2025 quarter or Q4FY25. The passenger vehicle sales growth remains in the slow lane as does that of two wheelers. The commercial Vehicles and tractor sales too have been a mixed bag. In the back drop analysts are not very hopefull on earnings performance of these companies.

The Auto sector as per Motilal Oswal Financial Services is likely to report a muted 1% YoY increase in earnings during Q4FY25. HSBC Securities and Capital Markets (India) Private Limited also expects a mixed bag performance and have lowered their target prices for Tata Motors to ₹700 (from ₹840 earlier), Bajaj Auto to ₹9,500 (from ₹10,500 earlier ), Ola Electric Mobility Ltd to ₹60 (from ₹70), Mahindra & Mahindra to ₹3,320 (from ₹3,520), and Hyundai Motor India Ltd to ₹2,000 (from ₹2,200)

2. Operating leverage – While on sequential basis HSBC research expects operating leverage to be positive for Maruti Suzuki India Ltd, Hyundai Motor India Ltd, Tata Motors , Ashok Leyland And Eicher Motors, they expect it to be neutral for TVS Motor Company ; and negative for M&M, Escorts, Bajaj Auto and Ola Electric.

3. Commodity costs: The two wheeler and four wheeler commodity index was up 2.6% and 1.6% sequentially , implying about 50bps and 30bp adverse impact on gross margins. For Electric Vehicles, the raw material cost as per HSBC was stable as the lithium carbonate price was largely stable.

4.Discounts and inventory: In 4QFY25, Passenger Vehicles retail discounts decreased about 5% sequentially, while inventory increased from 2 weeks to 4-6 weeks sequentially across OEMs, said HSBC. In two wheelers the discounts were largely flat in the ₹2-5000 range, while inventory increased to 45-60 days sequentially from 30-35 days in Q3. Commercial Vehicle discounts increased marginally on weak demand said HSBC

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