TVS Motors, Mahindra Top Auto Picks As Two-Wheelers, Tractors Drive Growth

The Indian automobile sector is expected to present a mixed demand picture for May 2025, according to Yes Securities' channel check note.

While two-wheelers and tractors are poised for positive growth, the heavy and medium commercial vehicle segment is predicted to remain flat, and passenger vehicles are likely to experience a decline.

Yes Securities top picks are TVS Motor Co., Mahindra & Mahindra, Hyundai Motor India, and Eicher Motors among original equipment manufacturers. In the ancillary space, the brokerage firm recommends Ceat and Endurance Technologies.

Despite a weak fleet sentiment, the segment is expected to see flat retail sales in May 2025, according to the brokerage firm. This is largely due to pre-buying ahead of upcoming regulations.

Mandatory air-conditioned cabin regulations, effective June 8, 2025 with a registration deadline of October 2025, are expected to trigger a 0.5% to 2% price hike, calling in early purchases. Further, a general price hike of 1% to 1.5% is anticipated in July 2025, further supporting this pre-buy trend.

Bus volumes are projected to hit a record high of over 8,000 units in May, according to the note, marking a 15% year-on-year increase, driven by seasonal demand and ongoing replacements. Discounts are expected to remain flat month-on-month.

The two-wheeler market is a mixed bag, according to the firm. The western and northern regions are showing healthy growth, while the central region is experiencing a decline. The southern region remains stable to positive.

Retail sales are expected to see mid-to-high single-digit growth, supported by the wedding season in some regions and volume recovery in Uttar Pradesh and Bihar. While rural demand is noted as stronger than urban, with mid-single-digit growth in urban areas, according to the analyst.

TVS Motor and Royal Enfield are expected to continue to outperform due to strong product reception, expanding presence in non-traditional markets, and product interventions.

The brokerage notes that TVS Motor implemented an average price hike of approximately Rs. 700 per unit in May, while Bajaj Auto increased prices by Rs. 1,200 per unit to offset logistical charges.

Demand for passenger vehicles remains weak, with an anticipated mid-single-digit year-on-year decline in May 2025 retails, estimated between 260,000 and 270,000 units. The underlying weak demand is particularly prevalent in urban areas, though rural markets are faring slightly better.

Mahindra & Mahindra has largely resolved software issues with its battery electric vehicles, but supply ramp-up is slow, awaiting clarity on state subsidies. M&M is also reportedly planning re-entry into the sub-compact SUV segment with a new styling, platform, and brand.

The brokerage notes that Maruti Suzuki India Ltd., is seeing improving CNG penetration in southern markets, aiding stability in its Arena portfolio, while Nexa continues to see double-digit growth.

Tractor retail sales are expected to see mid-single-digit year-on-year growth, with demand remaining stable to positive across most regions. The early monsoon has not yet significantly dampened sentiment, except in Maharashtra.

The sentiment has become mixed due to unseasonal rain and lower crop prices in certain areas. Non-agricultural tractor demand, remains weak, with an expected volume decline of 5-6%.

Inventory levels have slightly decreased and several subsidies for tractors and farm mechanization have been announced by both state and central governments.