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Entry-level weakness, high base to slow down domestic PV

We expect domestic PV industry volumes to grow by 4.5% yoy in FY2025E led by (1) continued weakness in entry-level car segment, (2) receding orderbook in SUV segment, and (3) higher base. We expect the SUV segment to continue to outperform. We expect market share of MSIL to decline in FY2025E due to newer launches by competitors across SUV segments whereas we expect Tata Motors to gain market share as it will strengthen its positioning in the mid-size SUV segment with newer launches. Demand trends in the global luxury car market is expected to remain steady, which augurs well for JLR.

Domestic PV industry growth expected to moderate to 4.5% in FY2025E

We expect domestic PV volume growth to remain steady at 6% yoy in FY2024E led by support from order backlog in the SUV segment. However, we expect volume growth to moderate in FY2025E to 4.5% yoy owing to (1) high base effect, (2) receding order book in SUV segments across most of the OEMs, and (3) sustained pressure in demand trends of entry-level hatchback volumes.

SUV segment will continue to outperform industry growth

We expect the SUV mix to continue to further improve to ~50% in FY2026E from 43% in FY2023 on account of (1) newer launches by the OEMs, and (2) changing consumers’ preference. Also, we expect the hatchback and sedan segments to underperform owing to (1) weak demand trends in entry-level segment, and (2) shift of consumers from premium hatchback to micro/compact SUV segments aided by overlapping price points. 

MSIL to lose market share over FY2025-26E

We expect MSIL’s market share to decline by 50-70 bps over FY2025-26E mainly on account of (1) newer launches by competitors across SUV segments, (2) weak demand trends in entry-level hatchback segment, and (3) continued underperformance of premium hatchback segment due to change in consumers’ preference. We expect TTMT market share to improve by 30-60 bps driven by newer launches, especially in SUV and EV segments. Also, we expect M&M to gain market share over FY2024-26E as the company’s orderbook remained strong led by its strong positioning in the large SUV segment.

Maintain SELL rating on Maruti Suzuki and REDUCE rating on Tata Motors

We maintain SELL rating on Maruti Suzuki with a revised FV of Rs8,700. Despite having multiple launches over the past two years, the company has not been able to meaningfully gain market share in the domestic PV segment. Also, with newer launches from competitors in CY2024E, we expect the company to lose market share. Also, we maintain REDUCE rating on Tata Motors with a revised FV of Rs800. We believe all the near-term positives are priced in at CMP pertaining to (1) market share gain in domestic PV and CV segments, (2) improvement in profitability of JLR business and (3) deleveraging of balance sheet. However, medium-term risk due to rapid electrification in China and Europe remains for the JLR business in our view.

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