Auto price hikes could hit demand sentiment, CLSA warns, but says weakness priced in

Auto stocks in India may have already factored in a large part of the potential demand headwinds, but further downside of 10–15% cannot be ruled out under a bearish scenario, brokerage firm CLSA said in its note on Wednesday, March 25.The brokerage said its bear-case analysis suggests more than half of the sector’s correction is already priced in, even as risks from margin pressure, price hikes and macro headwinds remain.

CLSA expects EBITDA margins of auto original equipment manufacturers (OEMs) to decline by 150–300 basis points in FY27 under a bear-case scenario, despite factoring in price hikes of 3–4% to offset cost pressures.
However, it cautioned that such price increases, along with broader macroeconomic stress, driven by the West Asia conflict, could weigh on demand sentiment.As a result, the brokerage has built in flat volume growth for FY27 in its bear case, compared with its base case assumptions of 6% – 8% growth.

Among key companies, CLSA noted that stocks such as Mahindra & Mahindra (M&M), Tata Motors Passenger Vehicles and Tata Motors Commercial Vehicles are already trading below their implied bear-case valuations, indicating that much of the downside may be priced in.

CLSA said while valuations have corrected, the sector’s near-term trajectory will depend on demand recovery and the extent of margin pressures amid a challenging macro environment.

41 analysts have coverage on Mahindra & Mahindra, of which 40 have a “buy” rating and the other one has a “hold” recommendation.

For Tata Motors Commercial Vehicles, 23 out of the 25 analysts covering the stock have a “buy” rating on it, while the other two have a “hold” recommendation.

No analyst tracking either M&M or Tata Motors CV have a “sell” rating on them.

For Tata Motors Passenger Vehicles, 11 out of the 34 analysts have a “buy” rating on the stock, 10 have a “sell” rating, while 13 have a “hold” recommendation.

Shares of Mahindra & Mahindra are trading 3.6% higher at ₹3,138.4, while those of Tata Motors Passenger Vehicles are trading with gains of 2.4% at ₹318.7. Shares of Tata Motors Commercial Vehicles are also trading 3.4% higher at ₹430.1.