Jefferies favours two-wheeler stocks over four-wheeler stocks as earnings gap widens

Jefferies has maintained a constructive view on India’s automobile sector while firmly preferring two-wheeler manufacturers over passenger vehicle makers, citing a widening divergence in profitability and pricing power.

Top picks and rating downgrades

Jefferies’ India autos team has highlighted TVS Motor Company and Eicher Motors as its top "Buy" picks in the segment. In contrast, the foreign brokerage has assigned "Underperform" ratings to Tata Motors Passenger Vehicles (TMPV) and Hyundai Motor India, reflecting ongoing margin risks and earnings downgrades for four-wheeler original equipment manufacturers (OEMs).


Divergent operational performance

The preference comes on the back of starkly contrasting operational performances during the June quarter. Across Jefferies' two-wheeler coverage universe, combined sales volumes rose 26% year-on-year, driving a robust 39% surge in earnings before interest and taxes (EBIT). The two-wheeler space demonstrated effective cost pass-through to customers and disciplined cost controls, allowing operating margins to remain resilient despite elevated raw material costs.

The passenger vehicle segment presented a vastly different picture. Despite delivering a 25% year-on-year growth in combined volumes across Hyundai Motor India, Maruti Suzuki, Mahindra & Mahindra, and Tata Motors PV, EBIT plunged 15% year-on-year. The earnings drop was driven by higher competitive intensity, increased discounting, and an inability to fully pass on input cost pressures.

Earnings revisions and street sentiment

Street estimates are rapidly reflecting this two-speed performance. Following minor cuts earlier in the year, consensus FY27 earnings per share (EPS) estimates for two-wheeler makers have risen by an average of 4%. Four-wheeler earnings estimates, on the other hand, have seen continuous downward revisions, with FY27 EPS projections trimmed by about 6% in the September quarter so far.

Stock returns and market outlook

Stock performance across the calendar year mirrors this operational divide. Two-wheeler stocks have seen steady gains, led by Bajaj Auto, TVS Motor Company, and Eicher Motors, while major four-wheeler stocks like Maruti Suzuki and Tata Motors PV have lagged behind the broader market.

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Looking ahead, Jefferies expects two-wheeler manufacturers to continue benefiting from a cyclical demand recovery in domestic markets and healthy export volumes. While commodity price volatility and high base effects remain key risks for the entire sector, two-wheelers are significantly better positioned to deliver superior operating leverage and steady EPS growth over the medium term.


(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)