Auto index hits new high in weak market; TVS Motor, Hero MotoCorp surge 6%

Auto stocks: Thus far in the calendar year 2024, the BSE Auto index has rallied 23 per cent as against 1.1 per cent gain in the S&P BSE Sensex

Shares of automobiles companies were in the top gear on Thursday, bucking the overall weak sentiment, with the S&P BSE Auto index hitting a new high of 52, 236 in the intraday trade. 

The index gained 2 per cent after TVS Motor Company and Hero MotoCorp (HMCL) reported healthy March quarter (Q4FY24) results, and posted strong revenue guidance for the financial year 2024-25 (FY25). These stocks rallied 6 per cent each on the BSE in Thursday's intraday trade.

Meanwhile, as per Federation of Automobile Dealers Associations (FADA) data, auto sector retail volumes in April 2024 stood at 2.2 million units, up 27 per cent year-on-year (Y-o-Y). Within the category, two-wheeler (2W) sales were up 33 per cent Y-o-Y  whereas three-wheeler (3W) grew 9 per cent Y-o-Y. Passenger vehicle (PV) and commercial vehicle (CV) sales volume were up 16 per cent and 2 per cent Y-o-Y, respectively.

At 12:22 PM, the Auto index was the top gainer among sectoral indices, and was up 1.5 per cent as compared to 0.53 per cent decline in the S&P BSE Sensex. Thus far in the calendar year 2024, the Auto index has rallied 23 per cent as against 1.1 per cent gain in the benchmark index.

TVS Motor Company, Hero MotoCorp, Tata Motors, and Mahindra & Mahindra (M&M) were trading higher in the range of 3 per cent to 4 per cent at the time of writing of this copy.

Quarterly results for Hero Moto were healthy with management guiding for double digit revenue growth in FY25E with blended margins in this range of 14-16 per cent.

Moving forward, the management of HMCL expects macro‐economic factors to aid the industry's growth. With commodity prices remaining stable, expectations of normal monsoons, and government spending expected to increase, HMCL sees multiple tailwinds for the sector over the upcoming quarters.

"The company will ramp up capacities in the premium side (Maverick, Karizma, etc.) as well as Xtreme 125 segment. It also generated a healthy CFO for FY24 at around Rs 4,500 crore with total dividend declared as Rs 140 per share (70 per cent payout for FY24). The stock trades inexpensive to its competition and offers an attractive play on 2W volume recovery domestically," ICICI Securities said in a note.

Motilal Oswal Financial Services (MOFSL), too,  expects HMCL to deliver a volume CAGR of 9 per cent over FY24-26E, driven by new launches in 125cc, scooters and premium segments, a ramp-up in exports. HMCL will also benefit from a gradual rural recovery, given strong brand equity in the economy and executive segments, the brokerage firm said.

Meanwhile, TVS Motor's management has indicated that FY25 will likely be an exciting year for new launches for the company. In EVs, it plans to launch multiple variants of iQube with various battery options to suit consumer needs. It also plans to launch other EV models, including its much awaited 3W EV.

Volume growth is likely to be driven by a recovery in the domestic 2W market, healthy demand for its products (Raider, 125CC scooters and iQube) and new product launches. MOFSL expects TVS Motor to continue to work on improving its profitability and factor in 90bp expansion in Ebitda  margin over FY24-26.