HSBC Slashes Tata Motors, Bajaj Auto, Ola Electric Targets for Q4FY25

HSBC Securities and Capital Markets (India) has downgraded target prices for several auto stocks, citing a muted outlook for Q4FY25 (January-March 2025). The revised targets include Tata Motors (₹700 from ₹840), Bajaj Auto (₹9,500 from ₹10,500), Ola Electric (₹60 from ₹70), Mahindra & Mahindra (₹3,320 from ₹3,520), and Hyundai Motor India (₹2,000 from ₹2,200). Here’s why HSBC is bearish on these stocks, based on Q4 performance trends:

1. Mixed OEM Sales Volumes:
   • Two-wheeler wholesale volumes fell 4% sequentially (up 6% YoY), and three-wheeler volumes dropped 6% sequentially (up 5% YoY).
   • Passenger vehicles grew 6% sequentially (up 5% YoY), but commercial vehicles showed uneven performance: light commercial vehicles (LCVs) were flat YoY, while medium and heavy commercial vehicles (MHCVs) rose 22% sequentially (up 3% YoY).
   • Tractor sales plummeted 28% sequentially, despite a 20% YoY gain, signaling demand inconsistency across segments.
2. Operating Leverage Concerns:
   • Positive operating leverage is expected for Maruti Suzuki, Hyundai, Tata Motors, Ashok Leyland, and Eicher Motors, but neutral for TVS Motor.
   • Negative leverage is projected for Mahindra & Mahindra, Escorts, Bajaj Auto, and Ola Electric, squeezing profitability due to lower volumes and higher costs.
3. Rising Commodity Costs:
   • Two-wheeler and four-wheeler commodity indices rose 2.6% and 1.6% sequentially, cutting gross margins by approximately 50 and 30 basis points, respectively.
   • Electric vehicle raw material costs remained stable, with lithium carbonate prices steady, offering no relief to other cost pressures.
4. Discounts and Inventory Build-Up:
   • Passenger vehicle retail discounts dropped 5% sequentially, but inventory levels surged from 2 weeks to 4-6 weeks, signaling sluggish demand.
   • Two-wheeler discounts held steady at ₹2,000-₹5,000, but inventory rose to 45-60 days from 30-35 days in Q3.
   • Commercial vehicle discounts edged up amid weak demand, further straining margins.

Industry Outlook: Motilal Oswal Financial Services predicts just a 1% YoY earnings growth for the auto sector in Q4FY25, reflecting subdued demand across passenger vehicles, two-wheelers, commercial vehicles, and tractors. HSBC’s cautious stance highlights challenges like high inventory, cost pressures, and uneven sales, prompting the reduced target prices.

Disclaimer: The views expressed are those of analysts, not Jobaaj. Investors should consult certified experts before making decisions.