Auto stocks to buy: Jefferies lists 3 top investment picks from the sector | Stock Market News

Jefferies has expressed a positive outlook on the Indian automobile sector, identifying Mahindra & Mahindra (M&M), Eicher Motors, and TVS Motor as its top three investment picks. 

The brokerage expects a robust growth trajectory for two-wheelers and tractors, projecting a compound annual growth rate (CAGR) of 13-15 per cent over the next two fiscal years. It further anticipates the growth in these two categories to surpass that of passenger vehicles (PVs) and trucks during this period.

The brokerage firm believes that the premium valuations of M&M, Eicher Motors, and TVS Motor will likely sustain due to their promising growth outlooks and strengthening franchises. However, Jefferies cautioned that the current valuations of Indian automobile companies are not inexpensive, which could pose a challenge for investors seeking value in the sector. 

In a recent update, Jefferies made significant changes to price targets for key players in the auto sector:

Bajaj Auto: Target reduced by 23 per cent to ₹10,350 from ₹13,400.

Hero MotoCorp: Target reduced by 11 per cent to ₹4,900 from ₹5,500.

Eicher Motors: Target raised by 20 per cent to ₹6,600 from ₹5,500.

Mahindra & Mahindra: Target increased by 10 per cent to ₹4,075 from ₹3,700.

Sectoral Growth Drivers

Jefferies highlighted the significant rebound in two-wheeler demand, which had lagged behind PVs during FY21-23 due to COVID-19 and regulatory cost pressures affecting vehicle affordability. The two-wheeler segment outperformed PVs in FY24, marking a notable turnaround.

The brokerage is optimistic about the tractor industry, which it believes is poised for a strong cyclical recovery. It projects a CAGR of 13 per cent and 15 per cent for two-wheelers and tractors, respectively, over FY25-27, compared to an 8 per cent CAGR for PVs and a 5 per cent CAGR for trucks. Jefferies is optimistic about earnings momentum in the auto sector, expecting double-digit EPS CAGRs for its coverage stocks between FY24-27.

Top Auto Stock Picks

Among the top picks, TVS Motor is projected to lead with an EPS CAGR of 30 per cent, followed by M&M at 20 per cent and Eicher Motors at 16 per cent. 

For Mahindra & Mahindra, Jefferies has maintained a ‘Buy’ rating and raised its target price to ₹4,075, offering a potential upside of 30 per cent. The company posted strong sales numbers in December 2024, with a 16 per cent year-on-year growth in auto sales and a 10 per cent rise in tractor sales. M&M, which boasts a commanding 30 per cent market share in tractors, also unveiled new EV models, including the Mahindra XEV 9e and BE 6, priced at ₹30.90 lakh and ₹26.9 lakh, respectively.

Eicher Motors remains another favourite of Jefferies, with its target price upgraded to ₹6,600. The company’s tractor sales surged 23 per cent year-on-year in December 2024, highlighting its robust growth in the segment. Eicher’s two-wheeler arm, Royal Enfield, is also gearing up for an exciting 2025 with the launch of new models, including an expanded 650 range and the much-anticipated Interceptor 750, which has already generated buzz in the market.

TVS Motor completes Jefferies’ trio of preferred stocks. With a target price of ₹3,050, the brokerage highlighted the company’s gains in market share for domestic and export two-wheelers. TVS has also witnessed significant growth in its electric two-wheeler segment, which could drive future earnings. However, the stock has faced short-term pressures, declining 4.6 per cent over the past month. Investors will be watching closely as the company announces its quarterly earnings later in January 2025.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.