“Crude is still rude”, says CLSA's blunt assessment, and this comes with sweeping target price cuts across India's auto sector, as rising oil prices threaten to derail earnings recovery. The brokerage has lowered valuations across OEMs and auto names, reflecting growing caution amid persistent geopolitical disruptions and commodity inflation.
Revised target prices span the entire pack: Ashok Leyland, Bajaj Auto, Eicher Motors, Escorts Kubota, Hero MotoCorp, Hyundai Motor India, Mahindra & Mahindra, Maruti Suzuki, Tata Motors PV, Tata Motors CV, TVS Motor. Most of these revisions also come with earnings cuts and cautious outlooks on margins.
- Ashok Leyland – Maintain Outperform; Cut TP to Rs 216 from Rs 227
- Bajaj Auto – Maintain Outperform; Cut TP to Rs 10707 from Rs 11410
- Eicher – Maintain Outperform; Cut TP to Rs 7454 from Rs 8066
- Escorts – Maintain Outperform; Cut TP to Rs 3752 from Rs 4313
- Hero Moto – Maintain Hold; Cut TP to Rs 5437 from Rs 5913
- Hyundai – Maintain Outperform; Cut TP to Rs 2652 from Rs 2853
- M&M – Maintain Outperform; Cut TP to Rs 4448 from Rs 4702
- Maruti – Maintain Outperform; Cut TP to Rs 15961 from Rs 17743
- Tata Motors CV – Maintain Outperform; Cut TP to Rs 648 from Rs 673
- Tata Motors PV – Maintain Outperform; Cut TP to Rs 440 from Rs 450
- TVS Motor – Maintain Outperform; Cut TP to Rs 3846 from Rs 4146
Despite the sector-wide reset, CLSA maintains its preferred picks: M&M, Bajaj Auto, TVS, Tata Motors PV and Ashok Leyland. These companies are seen as relatively better placed due to stronger execution, segment positioning, and resilience to demand shocks.
Earnings Risk: Full-Blown Downcycle?
CLSA frames the key question starkly: will the crude shock impact just one quarter, or trigger a deeper earnings downcycle through FY27? If elevated oil prices persist, the brokerage warns of a potential 30–40% earnings correction, in line with past periods of prolonged demand slowdown and cost pressures.
Even in a milder scenario, CLSA sees room for a further 10–15% correction in auto stocks, driven by earnings downgrades linked to fuel-led inflation.
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Margins and Demand Take a Hit
Higher crude prices create a dual challenge—raising fuel costs for consumers and input costs for manufacturers. This weakens demand while compressing margins.
Reflecting this, CLSA has cut EBITDA margin estimates by 100 basis points across its coverage and lowered average selling price (ASP) assumptions. The brokerage expects margin recovery to be pushed out, with FY28 now doing more of the heavy lifting.
CLSA has reduced FY27/FY28 earnings estimates by 3–13% across OEMs. Stocks like Eicher Motors, Hero MotoCorp, and Ashok Leyland have seen sharper downgrades, while even relatively resilient names such as M&M and TVS Motor have not been spared.
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