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Regulatory, demand headwinds a challenge to auto companies in 2019 - CLSA

Auto News - Published on Thu, 10 Jan 2019

Image Source: The Economic Times
Economic Times reported that Indian auto industry is likely to face testing times in 2019 and the next year due to subdued demand environment and large regulatory cost push ahead, said foreign brokerage CLSA, downgrading Eicher Motors, Bajaj Auto and Bharat Forge. CLSA said that “Competition should remain benign in PV (passenger vehicles), but high in 2Ws (twowheelers) and trucks. Input costs have started to ease, but regulatory changes pose margin headwinds.”

The brokerage has cut FY20-FY21 earnings estimates for Eicher Motors by 12-13 per cent, for Tata Motors and Ashok Leyland by 6-13 per cent, and Bharat Forge by 16-24 per cent. It has cut earnings estimates for Bajaj Auto as well as Mahindra & Mahindra by 4-8 per cent.

CLSA has downgraded Eicher Motors to ‘outperform’ from 'buy' and cut target price to INR 22,300 from INR 30,000, stating that recent volume trends have clouded visibility in the near term, though its faith in the product franchise and long-term potential remains. CLSA has trimmed rating on Bajaj Auto and Bharat Forge to 'sell' from 'outperform'.

While cutting target price on Bajaj Auto to INR 2,450 from INR 2,850, CLSA said it has downgraded the auto maker because of moderating growth outlook for three-wheelers and exports and pressures in the domestic two-wheeler business.

The brokerage cited weakening outlook for exports and Indian truck industry as the reason for downgrading Bharat Forge and cutting target price to INR 420 from INR 680.

CLSA favours Maruti Suzuki India in the auto space. With a 'buy' rating, Maruti is CLSA's top pick for 2019 given the strong franchise, long term growth outlook and lower competition intensity in the passenger vehicles segment.

The brokerage also favours Mahindra & Mahindra due to high likelihood of a rural stimulus, expectation of continued growth in the tractor segment, attractive valuations and product trigger in sports utility vehicles.

Source :

Posted By : Joykumar Irom on Thu, 10 Jan 2019
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