6 hrs ago
Citi Names Five Auto Stocks With 31%–49% Upside Potential
Citi, a brokerage, picked five Indian auto-related companies it expects to do well.
It gave each company a ‘Buy’ rating and set a target price above its current price.
Citi sees possible gains of 31% to 49% based on those targets.
It expects many vehicles to be sold, but costs for materials such as steel and rubber are rising.
Those higher costs could reduce companies’ profits.
Higher prices for vehicles and better product sales may help make up some of the difference.
Citi will watch closely to see how much people buy during the festive season.
It is also watching rural demand because weak monsoons could affect buyers there.
Citi rates Mahindra & Mahindra, Maruti Suzuki, Endurance Technologies, Tenneco Clean Air India and Hero MotoCorp ‘Buy’.
Citi’s target prices imply potential upside of 49% for Mahindra & Mahindra, 42% for Maruti Suzuki, 33% for Endurance Technologies, 32% for Tenneco Clean Air India and 31% for Hero MotoCorp.
The brokerage expects healthy vehicle volumes but warns that a tougher comparison base and higher input costs could pressure margins in the second half of FY27.
Recent price increases, product mix and operating leverage may partly offset cost pressures; Citi will monitor festive-season sales, bookings, dealer inventory and order backlogs.
Citi says weak monsoons could weigh on rural demand, which is important for tractors and entry-level vehicles.
- Who
- Citi and the five companies it named: Mahindra & Mahindra, Maruti Suzuki, Endurance Technologies, Tenneco Clean Air India and Hero MotoCorp.
- What
- Citi issued ‘Buy’ ratings and target prices with estimated upside potential of 31% to 49%.
- Where
- India’s auto sector.
- When
- Ahead of the festive season, as companies enter the second half of FY27; the article also gives estimates for the September quarter.
- Why
- Citi expects vehicle volumes to remain supportive but sees tougher year-on-year comparisons, rising input costs and possible rural-demand weakness as risks.
Supportive factors
Risks and pressures
Vehicle demand
Supportive factors
Citi expects healthy vehicle volumes, with festive-season activity providing a clearer read on demand.
Risks and pressures
Citi says a tougher comparison base and weak monsoons could affect demand, especially in rural areas.
Profit margins
Supportive factors
Recent price hikes, better product mix and operating leverage could partly offset higher costs.
Risks and pressures
Rising prices for commodities and other inputs are expected to pressure gross margins.
Key facts
- Mahindra & Mahindra
- ‘Buy’; target price Rs 4,260; stated upside 49%.
- Maruti Suzuki
- ‘Buy’; target price Rs 16,500; stated upside 42%.
- Endurance Technologies
- ‘Buy’; target price Rs 3,350; stated upside 33%.
- Tenneco Clean Air India
- ‘Buy’; target price Rs 650; stated upside 32%.
- Hero MotoCorp
- ‘Buy’; target price Rs 6,670; stated upside 31%.
- Two-wheeler OEM margin outlook
- Citi expects average gross-margin declines of 100 basis points quarter-on-quarter and 350 basis points year-on-year.
- Passenger-vehicle OEM margin outlook
- Citi expects average gross-margin declines of 70 basis points quarter-on-quarter and 390 basis points year-on-year.
Quotes
Citi
Brokerage providing analysis and forecasts on auto-sector companies.
“We pencil in 90bps QoQ gross margin decline due to weaker mix (seasonal decline in tractor volumes) and elevated commodity cost pressures. We will watch out for any change in guidance on tractor volumes. (currently mid-single digit).”
financialexpress.com
“Healthy YoY volume growth over 1HFY27 was aided by a weak base. However, as we head into 2HFY27, 1) the base gets tougher, 2) OEMs continue to take price hikes, and 3) weak monsoons could impact rural demand.”
financialexpress.com
Sources
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