HSBC Initiates Bullish Coverage On Tata Motors' CV Arm, Bets On Commercial Vehicle Sector Revival
The CV sector now resembles the passenger vehicle industry in growth, margins and returns, says HSBC.
HSBC Global Research says steady profitability, supported by a stable demand environment and disciplined discounting, is giving the commercial vehicle industry strong earnings visibility.
The global brokerage initiated a 'buy' call on Tata Motors CV with a target price of Rs 380, and maintains a 'hold' rating on Ashok Leyland with a revised target price of Rs 160 from Rs 145.
The CV sector now resembles the passenger vehicle industry in growth, margins and returns, and HSBC expects both to clock 4–6% CAGR, 11–13% Ebitda margins and over 25% ROCE in the next few years.
While CVs operate in a B2B world and PVs in B2C, both ultimately hinge on India’s consumption trends, says the report. The Dedicated Freight Corridor remains a risk, but technology and competitive threats are lower for CVs, and reinvestment needs are rising sharply for PVs, not for CVs.
HSBC reiterates its view that the CV industry is less cyclical than historical data implies, with past downturns mostly triggered by regulation. Today, with a more consolidated market, predictable financing, OEM discounting discipline and no major regulatory shocks ahead, the brokerage expects reduced cyclicality and more stable freight-rate dynamics. Nearly two-thirds of trucks remain BS-IV or older, pointing to replacement demand over the next one to three years.
Valuation upside is emerging too. After Tata Motors’ demerger, its CV arm is now separately listed. CV players like Ashok Leyland and TMCV trade at around 12 times one-year forward EV/Ebitda, compared with 15–17 times for PV companies. As the CV and PV profiles converge, HSBC sees room for a re-rating.
Between the two, TMCV lost about 3% market share in FY23–25 because the MHCV bus segment grew faster than goods, though its underlying share remains largely steady. It commands premium pricing and stronger gross margins, but higher other expenses have capped operating margins. HSBC expects operating efficiencies to improve under focused management post-demerger.
