Analyst Call Tracker: Tata Motors, Bajaj Auto, Eicher Motors see upgrades, but there’s caution on the Street

Reasons are clear: vehicle sales, particularly in passenger vehicles (PV) and two-wheelers (2W), are already showing a slowing trend, with declining month-over-month sales since April and decelerating year-on-year growth rates. Factors like high-interest rates, reduced pent-up demand, inflation, and rising vehicle prices are affecting sales. As a result, dealer inventories are rising, discounts are increasing, and a slowdown in wholesale dispatches may follow in the coming quarters, analysts say.

Besides, input costs, including steel, rubber, crude, and fuel prices, are also rising, pressuring profitability. Consequently, investors should expect flat or slightly declining operating margins in Q2 FY2025. If these trends persist, earnings growth for auto companies could stall. Some analysts expect a recovery in retail sales in the second half of FY2025, but until then, auto stocks may face a rough patch.

Here are some analysts expects on these three automakers:

Tata Motors: Analysts expect a soft outlook for JLR over the next two quarters. Despite a favorable product mix, JLR's ASP growth was limited to 0.6% YoY, and variable marketing expenses increased to 3.2% due to weak demand in Europe and concerns in China. Production constraints are expected in Q2/Q3FY25 due to a summer shutdown and supply disruptions.

According to InCred Equities, While medium and heavy commercial vehicle (MHCV) growth boosted EBITDA by 100 bps in Q1FY25, car demand weakness and delayed EV incentives have led to a 12% cut in the car division’s EBITDA forecast for FY25F. Despite recent stock gains, high valuations amid business challenges and guidance cuts from global peers lead to a cautious outlook, retaining a "reduce" rating, the brokerage house said.

Bajaj Auto: Analysts believe Bajaj has a strong position in the Pulsar portfolio and three-wheelers, with positive prospects for its two-wheeler CNG product, although Platina volumes may be affected. The new CNG motorcycle has received a good market response, and the company is expanding its market share in the electric 2W segment. Analysts said more focus is needed in the commuter and premium motorcycle segments (350cc+). Some analysts suggest most near-term positives are already priced into the stock, and the valuation seems high given slower-than-expected export recovery and rising commodity costs. Key domestic volume drivers include continued growth in ICE two-wheelers, two-wheeler CNG, new Pulsar and premium launches, and expansion in electric three-wheelers and two-wheelers. While exports are gradually improving, margins are expected to stay at 20.2% in FY25, rising to 20.7% in FY26.

According to InCred Equities, key downside risk is export weakness from geopolitical tensions, while the upside risk is market share gain with the help of captive financing arm and CNG bike.

Eicher Motors: Eicher Motors' Royal Enfield (RE) retail volume growth has been muted at 1% in FY25 YTD, compared to 14% growth for the 2W industry, leading to a 50 bps market share loss. Despite new launches, RE's wholesale volume declined by 3%, while the industry's motorcycle wholesale grew by 14%. Elara Securities reduced EPS estimates by 3-4% for FY24-27E due to flat domestic volume growth expected for RE in FY25E. Though margins have been strong, EPS growth is expected to be muted at ~8% YoY during Q2-Q4 FY25E. “We remain negative due to high prices limiting demand, new model launches cannibalizing sales, the RE-to-RE replacement not materializing, and rising competition. New launches are seen as necessary to maintain, not grow, RE's market share,” the brokerage said.