Eicher Motors gets its second downgrade in two days on valuation worries

Two-wheeler majors Eicher Motors, Bajaj Auto, TVS Motor Company, and Hero Motocorp will be in focus in Wednesday's trade after CLSA downgraded its ratings on three auto stocks while maintaining a 'Outperform' call on the fourth one. The global brokerage believes these auto stocks, except Hero MotoCorp, are now overvalued after the recent run-up in prices.

"We turn cautious as valuations are pricing in double-digit growth in volumes over the next few years, which think is unlikely," said CLSA's analysts in a client note.

Shares of Eicher Motors dipped 3% in two days after being hit by second analyst downgrade. CLSA has downgraded the counter to 'Sell' with a target price of ₹3,716 from ₹4,129 a share earlier. At 10 am, the scrip was trading 1% lower at ₹3,754.20.

The foreign brokerage expects new competitors Harley and Triumph to gain market share from Eicher's Royal Enfield.

Bajaj Auto, which was the second best Nifty performer last year, has also received a downgrade rating from CLSA. The broking firm now has a 'Sell' rating on the stock with a target price of ₹6,315 per share, against January 16 close of ₹7,300.

CLSA has slashed its FY24 and FY25 CL volume assumptions by 4.7% and 6.3%, respectively.

TVS Motor Company now has a 'Sell' rating with a target price of ₹1,438, suggesting a 30% downside potential from the current market levels. CLSA has decreased its FY24 and FY25 CL volume estimates by 2.0 and 4.1%, respectively.

On the flipside, analysts at CLSA have maintained their 'Outperform' rating on Hero Motocorp with a higher target of ₹4,964 from ₹4,127 earlier. The brokerage has increased its volume estimates in premium motorcycle and electric scooter segments.