The Indian automobile sector delivered below-expected sales in February 2025, said LKP Research. According to LKP's analysis, while SUVs, tractors, and exports showed strong year-over-year growth, other segments like commercial vehicles (CVs) continued to face pressure.
The research note emphasized that rural sales remained buoyant, supported by positive cash flow from the Kharif harvest and favorable reservoir levels that contributed to good Rabi sowing.
"February posted below than expected and a mixed bag kind of a performance in the Auto sales," stated the report authored by Senior Research Analyst Ashwin Patil and Research Associate Rahul Deshmukh.
The report highlighted several factors that could drive sector recovery going forward. LKP believes improved credit availability, supported by the RBI's reduction of the Cash Reserve Ratio (CRR), should enhance financing options in the auto sector.
Additionally, the government's focus on boosting consumption by providing relief to the middle class is expected to stimulate demand in the lower-end segments of two-wheelers and passenger vehicles.
LKP is particularly optimistic about rural market recovery and export growth in African and Latin American markets, which it views as major drivers for the sector's future performance.
In its segment-wise outlook and recommendations:
For Commercial Vehicles, LKP anticipates improvement in FY26, driven by increased government spending. The firm maintains a favorable outlook on Ashok Leyland within this space, citing its diversified revenue streams across light commercial vehicles, defense, medium and heavy commercial vehicles, exports, and spare parts.
In the Two-Wheeler segment, despite February's weakness, LKP maintains a positive outlook on Bajaj Auto due to its diversified fuel portfolio encompassing EVs, ethanol, and petrol options. The report notes Bajaj Auto is well-positioned to maintain its leading market share in EVs with a robust dealer network, while strong ICE margins provide a buffer against potential EV segment losses.
The research also highlights that exports have started posting solid numbers, which is vital for growth.
For Passenger Vehicles, LKP remains positive on Tata Motors and Mahindra & Mahindra (M&M), expecting both companies to sustain momentum with continued new launches.
M&M has successfully introduced EV models with minimal cannibalization of its existing product lineup. The firm also anticipates Hyundai to benefit from positive sentiment in rural markets.
In the Tractor segment, LKP foresees an up-cycle driven by favorable reservoir levels, strong crop prices, and improved rural sentiment, which should further bolster M&M's sales performance.
The research note concludes that while February may have been disappointing, the sector's long-term outlook remains positive, with rural recovery and export growth being key catalysts for future performance.