Nomura has identified Mahindra & Mahindra and Ather Energy as top picks following strong June auto sales that beat analyst estimates. The brokerage noted significant growth in commercial vehicle and tractor segments, alongside an inflection point in electric vehicle demand. Investors should watch for margin trends as raw material costs show signs of easing despite remaining pressures.
The Indian automobile sector showcased robust growth in June, driven by better-than-expected wholesale volumes across key categories. Brokerage firm Nomura highlighted this momentum, specifically favoring Mahindra & Mahindra and Ather Energy as companies well-positioned to benefit from current market trends. The positive outlook follows a month where industry performance, particularly in commercial vehicles and tractors, exceeded brokerage forecasts.
Volume Growth Surpasses Expectations
June sales data revealed a strong performance across the industry. Medium and heavy commercial vehicle wholesale volumes grew by 24% year-on-year, nearly doubling the 12% growth predicted by Nomura. The tractor segment also performed well, recording a 14% year-on-year increase in wholesale volumes against an expectation of 7%. Retail data from the Federation of Automobile Dealers Associations (FADA) further supports this trend, with total vehicle retail sales rising by 21.83% year-on-year to 25.57 lakh units. Passenger vehicles led this retail push with a 28.63% annual increase, while two-wheeler retail sales grew by 21.22%.
EV Adoption and Competitive Risks
Nomura emphasized that India’s electric vehicle segment is hitting a critical growth phase. Electric vehicle penetration reached 7.5% for passenger vehicles and 10.6% for two-wheelers in June. The brokerage warned that automakers heavily dependent on traditional internal combustion engine vehicles, without a clear or competitive electric vehicle strategy, could face risks of being valued lower by the market. This shift in consumer preference toward cleaner energy solutions is a key factor in the brokerage's long-term outlook for the sector.
Financial Context and Input Costs
While demand remains strong, the industry continues to manage input cost challenges. Geopolitical factors have recently led to a moderation in commodity prices, which may help improve the cost outlook for manufacturers. However, Nomura anticipates continued profit margin pressure for the June quarter. Input cost pressures are estimated at approximately 2.3% for passenger vehicle manufacturers and 3.4% for two-wheeler producers.
On the stock market, shares of Mahindra & Mahindra rose 1.14% to Rs 3,172.70, while Ather Energy shares gained 0.74% to Rs 1,138.40 on Monday. In contrast, Hyundai Motor India traded slightly lower by 0.35% at Rs 1,986.50. While Nomura holds a favorable view on several players, it noted that wholesale volumes for Maruti Suzuki, Eicher Motors, and Hero MotoCorp came in slightly below its internal estimates. Investors will likely monitor upcoming quarterly results to see how companies balance strong sales growth against persistent cost pressures.