Analyst Call Tracker: Tata Motors emerges as top bet in auto sector, rival Maruti Suzuki sees downgrades

Tata Motors topped the list of ratings upgrades in June.

Automobile major Tata Motors emerged as the top bet within the sector as it topped the list of stocks that garnered the maximum upgrades from analysts in June. On the other hand, rival Maruti Suzuki saw downgrades in the same tenure. Optimism for Tata Motors is emerging from its plans to demerge the commercial vehicles business into one entity and consolidate the passenger vehicles, including PV, EV, and JLR, into another entity.

According to Moneycontrol's Analyst Call Tracker, 'buy' calls for Tata Motors rose to 23 in June as against 20 in the month prior. Along with that, 'sell' and 'hold' calls reduced by one each during the month. On the flipside, rival Maruti Suzuki saw 'buy' calls reduce to 31 in June from the prior 33 while 'sell' and 'hold' ratings rose by one each.

Tata Motors' demerger to unlock value

Tata Motors' plans to demerge its businesses into two separate entities are seen as a welcome move by analysts. "Post demerger, Tata Motors' PV business will include both the domestic EV segment and the Jaguar Land Rover (JLR) business. Consequently, its separately listed PV stock will provide an opportunity to invest in both the domestic passenger vehicle market and the global premium passenger vehicle segment," Sharekhan stated in a note.

Based on this, Sharekhan also believes that the demerger will give investors yet another option to play on the mass-market PV growth story. Accordingly, the firm believes that though rival Maruti Suzuki may still sustain its leadership position in the PV segment, it may not have its TINA (there is no alternative) tag among investors for long. "Thus, considering the structural positive view on PV segment, we now prefer Tata Motors over Maruti Suzuki," Sharekhan said.

Meanwhile, Tata Motors also chalked out its plans to raise its market share in passenger vehicles (PVs) and increase its non-vehicle revenues in commercial vehicles (CVs), yet another move that sparks optimism among analysts.

Analysts at Jefferies also noted that in PVs, Tata intends to increase its market share from 14 percent in FY24 to 16 percent in FY27 and 18-20 percent by FY30. In CVs, it intends to gradually increase its market share and deliver strong double-digit EBITDA margins.

Premiumisation, Hyundai India IPO- a worry for Maruti Suzuki

Analysts at Sharekhan highlighted that even though the PV segment is expected to grow by single digits in FY25, the demand for entry-level models stays lukewarm as it continues to be skewed toward high-end products.

Given that Maruti Suzuki represents a classic play on the mass-market PV growth story, the rising trend of premiumisation may moderate its earnings growth, analysts believe.

In addition, the much-awaited initial public offer of Hyundai India also gives investors another option to bet on India's growing PV story, implying increased competition for Maruti Suzuki's stock. In addition, the 17.5 percent surge in shares of Maruti Suzuki in the year so far also prompted analysts to be cautious over prospects of a further upside.

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Hence, even though the company's growth trajectory remains intact, analysts choose to prefer other rivals due to the availability of better options.

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