Indian automobile majors Maruti Suzuki and Eicher Motors fell prey to brokerages' axe in April, becoming the two most downgraded stocks during the month owing to a tepid outlook and concerns over demand moderation.
In April, Maruti Suzuki saw a decline in positive recommendations from analysts, with 34 buy calls compared to 41 in March, alongside nine hold calls (up from six) and three sell calls (unchanged). Similarly, Eicher Motors experienced a shift in sentiment, with 17 analysts recommending a buy (down from 19 in March), 13 suggesting to hold, and 11 advising to sell their stocks during the same period.
In April, Maruti Suzuki shares gained nearly two percent while the Eicher Motors stock surged over 14 percent.
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Maruti treads on bumpy road
Following Maruti's strong Q4 results on April 26, a slew of brokerages issued bearish views on the country's leading four-wheeler automobile manufacturer, since the earnings were mostly priced in.
Domestic brokerage Kotak Institutional Equities has issued a 'sell' call on the Maruti Suzuki stock with a price target of Rs 10,500, a downside of over 17 percent from the last closing price. Analysts suggest that the volume trajectory is likely to remain muted over FY25.
Further, they said that the company's volume trajectory in the small and SUV segment is likely to decline. "We expect market share to slip to about 40.5-41 percent owing to newer launches by competitors," said a Kotak research note.
The company reported a 48 percent rise in its net profit to Rs 3,878 crore for the fourth quarter led by higher sales volume and favourable commodity prices. The Wagon R maker registered a revenue of Rs 38,235 crore in the three months ended March 31.
Nomura is 'neutral' on the stock and has a price target of Rs 12,523. It is also of the view that market share can come under threat from other players in FY 2025-26. The brokerage also predicts that discounts could rise as inventory increases.
Axis Securities recently downgraded the stock to 'hold' from 'buy' citing expensive valuations as growth volume in the entry-level car segment will remain muted in the near term. Furthermore, competition in SUVs or sports utility vehicles is expected to escalate. Maruti competes with the likes of Mahindra and Mahindra, Tata Motors, and Hyundai.
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What's hurting Eicher Motors?
In the last three months, Eicher Motors stock has trailed Nifty peers Hero MotoCorp and Bajaj Auto. Multiple analysts have expressed caution for the company.
Morgan Stanley maintains its 'underweight' rating on the Royal Enfield maker. The firm noted that Royal Enfield is moving from a period of strong growth with high margins to one of slower growth with high margins maintained. They suggested that current valuation multiples seem expensive when considering long-term growth potential.
However, just like its competitors, the company remains positive about volume growth in the fiscal year 2025. The brokerage raised the target price to Rs 3,533 significantly lower than the current market price of Rs 4,657.
Analysts also suggest that short-term challenges are anticipated for the VECV business, a joint venture with Volvo, attributed in part to ongoing elections and a slowdown in infrastructure projects. This results in limited upside potential for the stock, suggesting that its current price already factors in the positive market share momentum, recent product launches, and a recovery in exports.
In a recent report, Nuvama Institutional Equities maintained its 'hold' call on the Eicher Motors stock. Royal Enfield (RE) is facing intense competition from global brands, and that is likely to sustain, Nuvama predicts, expecting underperformance to persist with a moderate volume CAGR of 5 percent in the domestic market over FY24–26.
Analysts at Elara Securities suggest that RE may lose market share in the premium segment in FY23-26, amid launches by peers. The contribution share of existing RE customers upgrading to a new RE may not rise significantly, and any major outperformance versus industry growth is unlikely. Thus, premium valuation at 20-70 percent versus peers is unjustified.
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