Bajaj Auto To M&M: Why BofA Has Cut Target Prices Of Auto Players

BofA has lowered target prices of auto companies, as two-wheeler sales dip and Chinese EV makers pose risks in the four-wheeler segment. Despite maintaining its ratings, the brokerage has slashed targets of Hero MotoCorp. Ltd. and Bajaj Auto Ltd. among other players.

It maintained a 'buy' rating on Mahindra & Mahindra Ltd., with target price cut to Rs 3,385 from Rs 3,650. Bajaj Auto also kept a 'buy' rating but with a lower target price of Rs 8,900 from Rs 11,000.

The rating on Tata Motors was maintained at 'neutral' with a target price cut to Rs 735 from Rs 850. Hero MotoCorp also continued to hold a 'neutral' rating with target price cut to Rs 3,950 from Rs 4,650.

BofA maintained its 'underperform' rating on Hyundai with target price reduced to Rs 1,665 from Rs 1,700 earlier. For Escorts, the brokerage maintained their 'underperform' rating with target price cut to Rs 2,725 from Rs 3,200.

Maruti and Eicher retained a 'buy' rating from the brokerage, with target price at Rs 14,000 and Rs 6,000, respectively.

BofA maintained 'buy' rating on Ashok Leyland Ltd. with target price of Rs 260 as well.

However, M&M, Maruti and Eicher are key buys amid price cuts, it said.

Two-wheelers have taken a sharp U-turn, given volume growth turning negative from double digit and the analyst remains cautious on the segment. The brokerage cites two key factors that have caused the de-acceleration in sales volume.

The first being the tighter financing, which is lower loan to value, shorter tenures and increased processing time. A deterioration had preceded this in September, according to the brokerage. This had made lenders cautious.

The second factor is subsidy tailwind, according to BofA. There were a mass of state-election driven subsidies in 2024, especially in states like Maharashtra, Haryana and Rajasthan. These have raised the base.

Industry growth continues to fare at about 8% year-on-year. BofA highlights three major segments.

Scooters are growing leaps and bounds, which plays well to TVS Motor's advantage. The premium bike market, especially the cruiser segment, is relatively better but well fought as well, the brokerage noted. Thirdly, there has been some strong export recovery across original equipment manufacturers, led by Latin America and African markets. But it also notes that Bajaj and Hero have lagged due to limited scooter exposure and aggressive competition.

Market share loss concerns, hence, have meant sharper valuation de-rating for the companies. The brokerage picks Eicher over TVS to gain exposure to growth.

Bajaj screens well on value, with good export and EV strategy along with optionality from CNG, e-rickshaw, BofA said.

Tesla grabs all the attention in this segment and the brokerage is relatively more sanguine about four wheelers. Tractors standout on cycle recovery.

Analysts expect upside from recent income tax rate cuts to trickle in from the second half of the year.

M&M offers a good tractor exposure and a relatively fresh model cycle, including BEV, should drive share gains, BofA said.

Tesla concerns seem exaggerated to BofA. The opening up of market to Chinese EV makers is a key risk to watch, it said.

Maruti is on an improving product cycle with SUV launches, progress on EVs and exports strength, according to the brokerage.

The firm remains relatively cautious on Hyundai due to the lack of model cycle, competition risks to its key models and premium valuations. Tata Motors has limited downside after the sell off, according to the brokerage. Weak momentum across its businesses and tariffs remain as concerns, BofA said.