2 weeks ago
HSBC Favors Tata Motors, M&M Among Auto Stock Ideas
HSBC is a company that studies businesses and gives investment opinions.
It looked at vehicle makers and chose Mahindra & Mahindra and Tata Motors’ commercial-vehicle business as its favorites.
HSBC thinks many two-wheeler stocks are expensive, while some four-wheeler stocks are cheaper than usual.
Most vehicle companies had reasonably strong results in the first quarter.
Higher material costs are still hurting their profits.
Companies raised vehicle prices to help cover those costs.
Buyers have continued purchasing vehicles even after the price increases.
However, HSBC warned that more price increases and difficult comparisons with last year could slow growth later.
HSBC identified Mahindra & Mahindra and Tata Motors’ commercial-vehicle business as its preferred auto stock ideas.
The brokerage said two-wheeler valuations are expensive, while four-wheeler valuations are relatively inexpensive compared with historical averages.
Most automakers delivered resilient first-quarter results despite difficult cost conditions, with two-wheeler companies limiting margin pressure through pricing and cost controls.
Bajaj Auto and TVS Motor benefited from diversified revenues, exports and favorable currency movements, while Eicher Motors also reported a strong quarter.
HSBC expects mid-single-digit industry growth in the second half, but warned that price hikes, commodity costs and difficult comparisons could pressure future demand and margins.
- Who
- HSBC analyzed automobile manufacturers and highlighted Mahindra & Mahindra and Tata Motors’ commercial-vehicle business.
- What
- HSBC issued an auto-sector view, selecting its preferred stocks and forecasting stronger second-half growth while flagging cost and affordability risks.
- Where
- The analysis covers India’s automobile sector.
- When
- The article refers to first-quarter results, price increases in July and August, and expectations for the second half; no publication date is provided.
- Why
- HSBC favored companies combining reasonable valuations, diversified and defensive revenues, and long-term structural growth potential.
Positive investment case
Risks and concerns
Sector growth
Positive investment case
HSBC expects mid-single-digit growth across automakers in the second half, an improvement from its earlier low-single-digit forecast.
Risks and concerns
Successive price increases and challenging year-over-year comparisons could weaken the growth trajectory in the second half and the following financial year.
Profit margins
Positive investment case
Pricing actions and cost controls have helped many companies, while a modest softening in commodity prices could provide some support.
Risks and concerns
Input costs remain broadly stable at elevated levels, and the benefit of price increases will depend on customer demand and how quickly commodity pressures ease.
Company selection
Positive investment case
HSBC prefers Mahindra & Mahindra and Tata Motors’ commercial-vehicle business because of valuation, diversification and structural-growth characteristics.
Risks and concerns
The broader sector remains valued at a premium to historical averages, and affordability could come under pressure if prices continue rising.
Key facts
- Top stock ideas
- Mahindra & Mahindra and Tata Motors’ commercial-vehicle business
- Valuation view
- Two-wheelers are considered more expensive, while four-wheelers are relatively inexpensive versus historical averages.
- First-quarter performance
- Most automakers delivered broadly resilient results despite a challenging cost environment.
- Cost pressure
- Commodity and input costs remain a drag on profitability.
- Pricing response
- Most original-equipment manufacturers raised prices again in July and August.
- Growth forecast
- HSBC raised its second-half growth expectation to mid-single-digit growth from low-single-digit growth.
- Main risks
- Further price increases, difficult year-over-year comparisons and weaker consumer affordability could affect growth.
Sources
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