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The recent correction in automobile stocks has opened an opportunity for investors to selectively assess vehicle manufacturers, as healthy festive demand and resilient earnings provide support despite concerns over second-half growth and rising raw material costs, according to a report by Equirus Securities.
Recent correction in OEM stocks make a case for an active look, the brokerage said, adding that concerns over growth prospects in the second half of FY27 and raw material cost inflation were now largely priced in. However, the report cautioned that persistent foreign investor selling remains a key risk for the sector. Continued outflows from Indian equities could weigh on OEM valuations in the near term regardless of fundamentals, it said. The brokerage said passenger vehicle stocks have declined 19-30 per cent over the past year, while two-wheeler stocks, except Hero MotoCorp, have remained flat to have gained up to 11 per cent. Mahindra & Mahindra stands out among passenger vehicle manufacturers, trading at 18.2 times its estimated FY28 earnings, compared with 19.3 times for Maruti Suzuki and 21.7 times for Hyundai. Festive retail demand remained healthy across vehicle segments. Two-wheeler registrations rose 45 per cent year-on-year to 2.23 million units during the festive period in FY27, while passenger vehicle registrations increased 54 per cent to around 523,000 units. However, the brokerage cautioned that the growth rates were supported by a low base, as festive-period registrations had declined 11 per cent for two-wheelers and 17 per cent for passenger vehicles in FY26 following GST rate rationalisation. We believe the FY2527 CAGR is the right metric, the report said, noting that both segments recorded a compound annual growth rate of around 13 per cent over the two years. Electric vehicles continued to gain traction. Electric two-wheeler retail sales increased 93 per cent year-on-year, while electric passenger vehicle sales rose 91 per cent during the period. Their respective penetration levels reached 11.5 per cent and 8.6 per cent. The brokerage said most dealers remained confident that demand could sustain in absolute terms during the second half of FY27, supported by replacement demand in two-wheelers and new buyers in passenger vehicles. However, some urban dealerships reported a slight impact from stagnant income growth. (ANI)
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