Tata Motors, Bajaj Auto Shares Surge On DAM Capital's Ratings Upgrade To Buy
Escorts Kubota also received an upgrade from the brokerage firm, while Mahindra & Mahindra, TV Motor and RK Forging remain top picks.
Tata Motors Ltd. and Bajaj Auto Ltd. shares both surged over 3% after DAM Capital upgraded its ratings on the stocks citing a favourable risk-reward profile and valuation comfort following a sharp correction.
The brokerage expects a recovery in the auto sector in the next financial year, driven by favourable macroeconomic factors. Considering valuation comfort after a sharp correction and a favourable risk-reward balance, it upgraded shares of Tata Motors Ltd., Bajaj Auto Ltd. and Escorts Kubota Ltd. to 'buy'. Mahindra & Mahindra Ltd., TVS Motor Co., and RK Forging Ltd. remained the top picks frpom the sector.
For Tata Motors, the base case chalked out by the brokerage suggests an upside potential of approximately 17%, making the risk-reward profile favourable.
However, DAM Capital forecasts a lower Jaguar Land Rover volume to see compound annual growth rate of 6.5% over fiscal 2025 to 2027, and has factored in slightly lower margins and valuation multiples for commercial vehicle, passenger vehicle, and JLR businesses.
In a bear case scenario, the fair value of Tata Motors is estimated at Rs 675, indicating a 9% downside from the current market price.
Whereas for Bajaj Auto, in a bear case, the brokerage projects a volume growth at CAGR of 6.3% over fiscal 2025-2027, with export growth about 200 basis points lower and domestic volume growth 100 basis points lower than the base case. Ebitda margins are estimated at 20% in fiscal 2027, and the fair value under a bear case scenario is Rs 8,321, implying a 6% downside. However, the base case indicates a 10.1% upside.
Additionally, Sri Lanka lifting its export ban on Indian vehicles after four years is expected to boost Bajaj Auto's export-driven profitability.
Auto Sector Outlook
DAM Capital found early signs of rural recovery, while urban demand remains sluggish. Southern and western regions are showing improvement after two years of muted demand, whereas northern and central regions are expected to remain stable or slightly subdued due to previous years' strong growth and crop damage from untimely rainfall.
The tractor segment is emerging as a clear winner, with double-digit growth expected in the next year. Two-wheelers and passenger vehicles are likely to see marginal growth, while commercial vehicle recovery hinges on increased government spending, which slowed during the first nine months of fiscal 2025.
Favorable macroeconomic factors, including surplus monsoon, higher water reservoir levels, healthy agricultural output, improved minimum support prices, and robust sowing trends, are expected to drive higher rural incomes and consumption. Budgetary allocations for infrastructure and highways will also play a critical role in commercial vehicle recovery.
Auto Stocks Rise
Tata Motors share price rose as much as 3.27%.
Escorts Kubota share price rose as much as 4.53%.
Bajaj Auto share price rose as much as 3.31%.
M&M share price rose as much as 2.83%.
TVS Motor share price rose as much as 1.97%.
