These Auto Stocks Are Jefferies' Top Picks In 2025 Sector Outlook

The outlook for India's auto industry in 2025 shows signs of divergence in growth among key sectors, with two-wheelers and tractors expected to outpace passenger vehicles and trucks, in terms of growth over the next few years, according to Jefferies.

For the period FY25-27, the brokerage forecasts a compound annual growth rate of 13-15% for two-wheelers and tractors, while the expected CAGR for passenger vehicles and trucks stands at a more modest 5-8%. This projection reflects a shifting landscape in the Indian auto market, where traditional sectors like 2Ws and tractors are poised for stronger growth, driven by factors such as greater affordability and improved accessibility.

Jefferies has identified Mahindra and Mahindra Ltd., Eicher Motors Ltd., and TVS Motor Co. as its top picks for 2025. These companies are expected to outperform the broader market, with MM expected to gain share across its tractor, PV, and light commercial vehicle segments. TVS, on the other hand, has successfully gained market share in both domestic and export two-wheeler segments in recent years.

MM’s share in the passenger vehicle market has seen a significant increase, positioning it as a strong competitor to Hyundai. Jefferies expects Mahindra to surpass Hyundai and become the second-largest original equipment manufacturer in PVs by FY27. The company's dominance is also visible in the tractor and LCV markets.

For TVS, its domestic market share in two-wheelers has risen to a multi-year high of 17%, while export volumes have surged to a new peak of 25-26%.

Eicher Motors, which has a strong presence in the premium motorcycle segment, is expected to benefit from continued demand for high-performance two-wheelers in both domestic and international markets. The company is forecast to see a 16% earnings growth through FY24-27.

The adoption of electric vehicles in India’s automotive sector has been slower than expected. The share of EVs in two-wheeler sales has remained stagnant between 4-7% over the last two years. Despite the introduction of lower-priced electric two-wheelers, factors like consumer confidence, product reliability, and resale value remain key barriers to faster adoption. Jefferies anticipates that the share of electric two-wheelers will gradually rise to 6% by FY25, 8% by FY26, and 10% by FY27.

EV adoption in passenger vehicles has been even slower, with Tata Motors leading the EV charge but facing intense competition from players like MG Motor, Mahindra, Maruti Suzuki India Ltd., and Hyundai Motor.

While EVs have seen some traction, the transition will be gradual, with market share in the two-wheeler segment expected to expand slowly in the coming years, Jefferies said.

Among the auto manufacturers covered by the brokerage, TVS is expected to deliver the strongest earnings growth, with a projected 30% earnings per share over FY24-27. This is followed by Mahindra at 20% and Eicher Motors at 16%.

Jefferies has raised its FY25-27 EPS estimates for Eicher and Maruti, while lowering projections for Bajaj, Hero, Tata Motors, Sona, and SAMIL.

Despite strong rallies in the automotive sector from 2022-2024, valuations are no longer cheap, according to Jefferies. However, premium multiples for companies with better growth prospects and strong franchises should persist, it said.

Based on the growth prospects outlined, Jefferies remains positive on the Indian auto sector, with a focus on two-wheelers and tractors over passenger vehicles and trucks. The brokerage firm’s preferred buys for 2025 include:

• Mahindra & Mahindra: Price target at Rs 4,075, with an upside of 28%.

• Eicher Motors: Price target of Rs 6,600 per share, with an upside of 24%.

• TVS Motor: Price target at Rs 3,050, with an upside of 23%.

In contrast, companies like Maruti Suzuki and Ashok Leyland Ltd. are viewed more cautiously, with target prices indicating limited upsides.