Automobile stocks are unlikely to offer healthy returns for investors unless there is a V-shaped recovery in demand in 2020, said HSBC. “2019 was the weakest year for Indian autos in decades. Weak macros, tight liquidity, uncertainty around tax stimulus and regulations all impacted demand,” said the brokerage’s analysts Yogesh Aggarwal, Vivek Gedda and Kushan Parikh in a client note. HSBC said sales could bounce back in 2020, particularly for passenger vehicles but the ‘demand pull remains mediocre at best’. The brokerage prefers Bajaj Auto, Mahindra & Mahindra and Escorts in the sector. — Our Bureau

BAJAJ AUTO


CMP: Rs 3,060

Target Price: Rs 3,600

Expected Returns : 18%

HSBC has maintained its buy rating on the stock on the grounds that Bajaj is a defensive company with a strong export portfolio, which is not impacted by emissions and safety regulations. “We lower our FY21e (estimated) earnings estimates by 2% as we factor in lower volumes led by weak demand,” the brokerage’s analysts said.

M&M


CMP: Rs 524

Target Price: Rs 780

Expected Returns : 49%

HSBC has maintained its buy rating on M&M as its target price implies a 49% jump in shares. The brokerage highlighted weak demand, higher competition, and, subsequently, low growth expectations for M&M. “We lower our FY21e earnings estimates by 3% as we factor in lower volumes, led by a weak demand environment,” the analysts said.

ESCORTS


CMP: Rs 613

Target Price: Rs 830

Expected Returns : 35%

The brokerage has valued the stock at 15 times 12-month forward price to earnings (PE) ratio, a 15% premium to the 5-year historical average owing to strong operating performance and improvement in return on equity (ROE) expected over the medium term. “Current valuations at 10 times FY21e (estimated) earnings are attractive in our view,” the analysts said.

Target price is by HSBC | Expected returns based on HSBC target price





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