As the market awaits GST Council meeting outcome on Friday, CLSA released a short report on the auto sector stating that the two-wheeler OEMs are likely to face another phase of margin headwinds in financial year 2021 as they may find it difficult to pass on the full cost impact of the upcoming BS6 emission norms amid weak demand and high competition.

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The brokerage cut FY20/21 2W industry volume growth forecasts from -2 percent/+5 percent to -7 percent/+4 percent, which results in 3-12 percent earnings cut to FY20-21 EPS from 2W OEMs.

According to the brokerage house, above-average rainfall in 2019 offers some hope, but subdued agriculture commodity prices and a high base after two years of strong growth in rural 2Ws are likely to limit the benefits.

It further said that the 2W industry also faces challenges of higher dealer inventories and a big regulatory cost-push in April 2020. The dealer survey indicated a subdued festive season this year.

Largely the brokerage held a cautious view on Indian 2Ws due to concerns of slower growth and higher competition, but also saw few reasons to turn constructive.

It maintained a more positive view on Eicher Motors, with 'outperform' rating but cut target price to Rs 18,000 from Rs 19,000 given its strong presence in the under-penetrated premium motorcycle segment, although the stock is likely to remain range-bound until Royal Enfield volumes pick up.

Meanwhile, it retained 'sell' ratings on Bajaj Auto (TP: Rs 2,275), Hero MotoCorp (TP: Rs 2,100) and TVS Motor (TP cut to Rs 325 from Rs 360).