UBS downgraded Maruti Suzuki India Ltd. from 'buy' to 'neutral' and Bharat Forge Ltd. from 'buy' to 'sell' on Friday. The brokerage still views TVS Motor Ltd., Mahindra and Mahindra Ltd., Hyundai Motor India Ltd., and Ashok Leyland Ltd., as relatively better placed to navigate the tough terrain.
Maruti's rating downgrade is on the back of weak demand environment, especially for small cars, and low confidence on it regaining market share as competition for the second spot intensifies.
The brokerage downgraded Bharat Forge on global uncertainty, weakness in its non-defence businesses and weak end-consumer commentary, it said.
Two-Wheelers, Passenger Vehicles And APTY
In the two-wheeler segment, TVS will continue to stand out, with strong 27% year-on-year growth in Ebitda. While Eicher may report 3% Ebitda growth, Bajaj Auto and Hero MotoCorp's Ebitda may decline, it said.
Passenger vehicle segment's sequential margin decline could be higher, UBS predicts. M&M could continue to stand out, driven by more resilient PV volume and strong tractor growth. JLR, despite weak volume, will have an abnormally strong mix, and its first quarter performance should not be extrapolated, given rising tariffs, it said.
Commercial vehicle segment could see the steepest margin hit quarter-on-quarter from seasonality and steel cost inflation.
Automotive precision technology may have flattish raw material costs and benefit from cost control, while Bosch may benefit from good tractor sales. The brokerage expects Bharat Forge to remain weak due to global uncertainty.
OEMs And Components
UBS highlighted that the BSE Auto Index outperformed BSE Sensex by 5% last quarter and most stocks are trading at the higher end of their valuation bands.
The brokerage expects seven out of the 12 companies that it covers to have year-on-year Ebitda declines, on moderating demand and a commodity price uptick.
"Among OEMs, we expect all but TVS Motor Ltd., M&M Ltd., Eicher Motors Ltd., and Ashok Leyland Ltd., to have year-on-year Ebitda drops, as Tata Motors Ltd., Maruti Suzuki Ltd., and Hero MotoCorp. face the sharpest drops," it said.
Among component coverage, the brokerage noted Bosch Ltd. could grow, while it expects Apollo Tyres Ltd., and Bharat Forge Ltd., to decline.
"Even as the sector sees broad-based profit growth derailing and a challenging outlook, stocks continue to rise, making the risk-reward less attractive. Moreover, we see meaningful downside to consensus estimates in many names, on elevated expectations," it added.
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