20 July 2020 1QFY21 Results Preview
Autos & Transportation
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Stocks factoring in an early recovery Volume growth over 1QFY21 was uneven as production was initially
impacted by the plant shutdown in Apr 2020, while retail demand picked up
sharply in June. Correspondingly, valuation multiple for auto companies re-
rated from trough levels to above mean P/E levels. NIFTY Auto index is up
51% from the Mar 2020 levels (vs. 28% for the broader NIFTY). The rally has
been driven by several factors, including (1) recovery in volumes for rural
segment/increased preference for personal mobility, (2) improved focus on
capital allocation, and (3) benign sector valuations. We believe that stock price
returns will be more gradual from here on as expectations of a recovery in
volumes is partially priced in. Against this backdrop, we recommend Maruti
and Endurance as our preferred sector picks.
Volumes revived in Jun 2020: (1) There was a significant MoM uptick in
volumes across two-wheelers, entry-level cars, and tractors. Hero's sales at
450k (3x higher MoM, -27% YoY), Maruti sales at 52k (up 2.8x MoM, -53%
YoY) and Hyundai (+70% MoM) have likely grown ahead of the market.
Escorts volumes at 10,851 units (+21% YoY) benefitted from the agri-led
demand. (2) With most of the dealerships open for operations, we believe
that the sales were supported by pent-up demand, improving rural demand
and shift to personal mobility. (3) With improving rural sentiments on the
back of structural government reforms and timely arrival of monsoons,
tractor sales have normalised to pre-pandemic levels.
Stock multiples have re-rated: Valuation multiples for auto companies have
now risen to above mean levels as the NIFTY Auto index is up 51% from the
Mar 2020 levels (vs. 28% for the broader NIFTY). The rally has been driven
by several factors, including (1) recovery in volumes for rural
segment/increased preference for personal mobility, (2) improved focus on
capital allocation, and (3) benign sector valuations. We believe that stock
price returns will be more gradual from here on as expectations of a
recovery in volumes are partially priced in.
1QFY21 earnings outlook: Earnings will be muted for the quarter due to
plant shutdowns in April and May. Weak commodity prices are likely to
partially cushion margins, as operating deleverage will impact profitability.
Earnings of the tractor segment (Escorts) are likely to outperform the sector.
Logistics: Volumes for container rail operators are expected to be muted.
However, the stock price of CONCOR will be driven by news flow around
privatisation, while that of Gateway Distriparks will be determined by
deleveraging initiatives.
Key recommendations: Maruti and Endurance are our preferred picks in the
auto/auto parts sector. The former will benefit from its entry-level portfolio
(rural is ~40% of sales) and higher exposure to gasoline vehicles. Endurance
is expected to gain share in the 2W/3W component segment, led by order
wins/new product introductions. We remain cautious on the commercial
vehicle sector due to a delayed recovery and recommend REDUCE for
Ashok Leyland.
Company CMP
(Rs/sh) Reco
Ashok Leyland 52 REDUCE
Bajaj Auto 3,002 ADD
Eicher 19,181 REDUCE
Escorts Ltd. 1,120 BUY
Hero Motocorp 2,856 BUY
Mahindra 594 ADD
Maruti Suzuki 5,867 BUY
Tata Motors 105 ADD
Endurance 878 BUY
Subros 165 ADD
Gulf Oil 587 BUY
CONCOR 446 ADD
Gateway
Distriparks 90 ADD
NIFTY Auto index is up 51% from
the Mar-20 levels
Source: Bloomberg, HSIE Research;
indexes rebased to 100
Aditya Makharia
+91-22-6171-7316
Mansi Lall
+91-22-6171-7357
100
110
120
130
140
150
160
Ma
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0
Ap
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-20
Jul-
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NIFTY NIFTY AUTO
Page | 2
1QFY21E Results Preview
1QFY21E earnings preview
COMPANY
Volume (in units '000) NET SALES (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS
1Q
FY21E
QoQ
(%)
YoY
(%)
1Q
FY21E
QoQ
(%)
YoY
(%)
1Q
FY21E
QoQ
(bps)
YoY
(bps)
1Q
FY21E
QoQ
(%)
YoY
(%)
1Q
FY21E
4Q
FY20
1Q
FY10
Ashok Leyland 4 (85) (90) 5.9 (85) (90) 4.2 (57) (525) (1.1) NA (145) (0.4) 0.0 0.8
Bajaj Auto 443 (55) (64) 30.8 (55) (60) 16.9 (148) 145 7.1 (46) (37) 24.5 45.3 38.9
Eicher 57 (65) (69) 7.8 (65) (67) 18.8 (77) (700) 1.2 (61) (74) 43.8 111.6 165.7
Escorts 18 (3) (14) 13.5 (2) (5) 14.0 (8) 399 1.3 (5) 52 13.2 13.9 8.7
Hero Motocorp 563 (58) (69) 26.9 (57) (67) 9.9 (68) (452) 2.6 (58) (66) 13.0 31.1 38.2
Mahindra 95 (37) (56) 58.0 (36) (55) 13.0 (63) (101) 3.0 (6) (66) 2.5 2.7 7.5
Maruti Suzuki 77 (80) (81) 36.0 (80) (82) 8.0 (50) (238) 2.6 (80) (82) 8.5 42.8 47.5
Tata (S) 25 (75) (82) 25.0 (74) (81) (5.0) NA NA (13.9) (0) 1 (3.9) (5.8) (0.4)
Aggregate
203.9 (64) (71) 10.1 129 (161) 2.8 (85) (94)
Source: Company, HSIE Research
COMPANY
NET SALES (Rs mn) EBITDA Margin (%) APAT (Rs mn) Adj. EPS
1Q
FY21E
QoQ
(%)
YoY
(%)
1Q
FY21E
QoQ
(bps)
YoY
(bps)
1Q
FY21E
QoQ
(%)
YoY
(%)
1Q
FY21E
4Q
FY20
1Q
FY10
Endurance 12,499 (22) (35) 13.7 (120) (419) 458 (57) (72) 3.3 7.6 11.8
Subros 2,541 (45) (56) 8.5 (58) (113) (16) (110) (111) (0.2) 2.5 2.2
Gulf Oil 3,359 (7) (24) 15.0 (40) (267) 351 (2) (28) 7.1 7.2 9.8
Source: HSIE Research
COMPANY
NET SALES (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS
1Q
FY21E
QoQ
(%)
YoY
(%)
1Q
FY21E
QoQ
(bps)
YoY
(bps)
1Q
FY21E
QoQ
(%)
YoY
(%)
1Q
FY21E
4Q
FY20
1Q
FY10
LOGISTICS
CONCOR 12.3 (21) (25) 27.1 (315) 249 2.0 (34) (10) 3.4 5.1 3.7
Gateway
Distriparks 2.3 (22) (25) 20.7 (78) 94 0.01 (94) (99) 0.1 1.0 5.4
Source: HSIE Research
Estimate change
Rating Old TP New
TP Old target multiple New target multiple
Old EPS New EPS % change
FY21 FY22 FY21 FY22 FY21 FY22
Ashok Leyland REDUCE 47 49 13 13 0.9 3.6 0.9 3.5 - (3.6)
Bajaj Auto ADD 2,850 3,145 17 18 149.4 167.6 149.4 167.6 - -
Mahindra ADD 520 610 13x on core business 14x on core business 25.8 34.4 28.3 35.7 9.6 3.6
Maruti Suzuki BUY 5,810 6,750 23 25 146.0 252.4 146.0 252.4 - -
Endurance BUY 1,040 1,040 25 25 31.7 39.6 31.7 39.6 - -
Subros ADD 190 190 17 17 5.7 11.1 5.7 10.6 - (5.0)
CONCOR ADD 445 470 22 22 15.4 20.1 15.4 20.1 - -
Gateway
Distriparks* ADD 95 104 8x Rail business 8x Rail business 1.5 3.9 1.2 3.7 (20.2) (5.9)
Gulf Oil BUY 750 760 20 20 32.0 37.3 32.0 36.6 - (1.9)
Source: Company, HSIE Research; *valued on EV/EBITDA multiple
Valuation summary
Adj EPS (Rs/sh) P/E (x) RoE (%)
FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E
Ashok Leyland 0.9 3.5 4.7 56.4 14.8 11 3.2 11.5 14.3
Bajaj Auto 149.4 167.6 195.6 20.1 17.9 15.3 18.2 18.8 20.1
Container Corporation 15.4 20.1 24.9 28.9 22.2 17.9 9.2 11.4 13.3
Endurance 31.7 39.6 46.9 27.7 22.1 18.7 14 15.5 16.1
Gateway Distriparks 1.2 3.7 6.3 77.1 24.6 14.4 3.8 4.3 5.7
Gulf Oil Lubricants 32 36.6 41.9 18.4 16.1 14 21.4 21.9 22.2
Mahindra 28.3 35.7 42.4 21 16.6 14 9.2 10.8 11.7
Maruti Suzuki 146 252.4 324.9 40.2 23.2 18.1 8.5 13.6 15.8
Subros 5.7 10.6 13.9 29.1 15.6 11.9 19.5 24.8 29
Source: HSIE Research
Page | 3
1QFY21E Results Preview
AUTOS
1QFY21 Volume Summary
Volumes in units 1QFY21 4QFY20 1QFY20 % QoQ % YoY
Ashok Leyland 3,814 25,504 39,608 (85) (90)
- MHCV 1,021 16,953 26,719 (94) (96)
- LCV 2,793 8,551 12,889 (67) (78)
Bajaj Auto 443,103 991,961 1,247,174 (55) (64)
- 2W 399,929 853,540 1,082,627 (53) (63)
- CV 43,174 138,421 164,547 (69) (74)
Eicher 59,398 174,499 196,920 (66) (70)
- 2W 57,269 162,870 183,589 (65) (69)
- CV 2,129 11,629 13,331 (82) (84)
Escorts 18,150 20,108 21,051 (10) (14)
Hero Motocorp 563,426 1,334,511 1,842,920 (58) (69)
Maruti 76,599 385,025 402,594 (80) (81)
M&M 95,308 151,713 218,039 (37) (56)
- Auto 29,651 92,423 131,689 (68) (77)
- Tractors 65,657 59,290 86,350 11 (24)
Tata Motors 25,047 101,420 137,545 (75) (82)
- PV 14,571 32,351 37,188 (55) (61)
- CV 10,476 69,069 100,357 (85) (90)
TVS 266,933 632,920 923,195 (58) (71)
- 2W 255,428 590,318 883,670 (57) (71)
- 3W 11,505 42,602 39,525 (73) (71)
CONCOR (in TEUs) 732,711 941,270 926,923 (22) (21)
Source: SIAM, Company, HSIE Research
Volume Assumptions – Annual estimates (in units)
Company
FY18 FY19 FY20 FY21E FY22E
Ashok Leyland Total volumes 174,851 197,366 125,250 109,328 128,021
% YoY 21 13 (37) (13) 17
Bajaj Auto Total volumes 4,006,788 5,018,712 4,615,212 4,049,773 4,384,113
% YoY 9 25 (8) (12) 8
Eicher RE Total volumes 820,493 823,828 696,052 602,132 662,345
% YoY 23 0 (16) (13) 10
Escorts Total volumes 80,405 96,412 86,017 79,958 88,788
% YoY 26 20 (11) (7) 11
Hero Motocorp Total volumes 7,587,193 7,820,831 6,409,719 5,555,331 6,095,648
% YoY 14 3 (18) (13) 10
M&M Total volumes 135,306 165,797 123,910 108,757 117,216
% YoY 15 23 (25) (12) 8
Maruti Suzuki Total volumes 1,779,574 1,862,449 1,563,297 1,326,605 1,498,145
% YoY 13 5 (16) (15) 13
Tata Motors Total volumes 641,133 732,739 473,502 402,998 458,918
% YoY 17 14 (35) (15) 14
CONCOR Total volumes* 3,531,900 3,829,419 3,747,758 3,227,116 3,823,878
% YoY 14 8 (2) (14) 18
Source: SIAM, Company, HSIE Research, *volumes in TEUs
Page | 4
1QFY21E Results Preview
Monthly volumes (in units)
Ashok Leyland: CV sales remains weak Bajaj Auto: Pick-up in 2W volumes
Source: SIAM, Company, HSIE Research Source: SIAM, Company, HSIE Research
Royal Enfield: Sales pick-up due to pent-up demand Hero: Volumes have risen led by rural offtake
Source: SIAM, Company, HSIE Research Source: SIAM, Company, HSIE Research
Escorts: Tractors sales back at YoY levels Maruti Suzuki: Entry level cars witnessing demand
Source: SIAM, Company, HSIE Research Source: SIAM, Company, HSIE Research
-
5,000
10,000
15,000
Ap
r-19
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Mar
-20
Ap
r-20
May
-20
Jun
-20
-
40,000
80,000
120,000
160,000
200,000
240,000
280,000
Ap
r-19
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Mar
-20
Ap
r-20
May
-20
Jun
-20
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Ap
r-19
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Mar
-20
Ap
r-20
May
-20
Jun
-20
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Ap
r-19
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Mar
-20
Ap
r-20
May
-20
Jun
-20
-
3,000
6,000
9,000
12,000
15,000
Ap
r-19
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Mar
-20
Ap
r-20
May
-20
Jun
-20
-
40,000
80,000
120,000
160,000
Ap
r-19
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Mar
-20
Ap
r-20
May
-20
Jun
-20
Page | 5
1QFY21E Results Preview
COMPANY 1QFY21
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Ashok Leyland WEAK
Volumes are down 90% YoY and 85% QoQ
EBITDA margin is expected at 4.2% (-95bps
YoY, -85bps QoQ)
We expect the company to report a loss of Rs
1.1bn
Current industry utilisation levels
AL’s diversification initiatives
Bajaj Auto WEAK
Volumes in the quarter declined by 64/55%
YoY/QoQ
We expect revenues to decline by 60/55%
YoY/QoQ
Operating margins at 16.9% to contract by
150bps QoQ, +150bps YoY
We expect PAT to decline by 37% YoY to 7bn
Outlook on exports, particularly to the
African continent
Recovery trends in the Indian market
Eicher Motors WEAK
We expect revenue to decline by 67/65%
YoY/QoQ
EBITDA margin of 18.8% (-700/-80bps
YoY/QoQ)
PAT decline of 74/61% YoY/QoQ to Rs
1.19bn
Demand outlook in the semi urban areas,
where new format stores have opened up
Outlook for the 650cc Twins – both in local
as well as overseas markets
Impact of lockdown on urban centers
Escorts GOOD
Tractor volumes have surprised positively,
due to mere 14/3% YoY/QoQ decline in
volumes (much better than other segments)
We expect margins to improve YoY by
400bps to 14%, flat QoQ
PAT growth of 52% YoY, -5% QoQ
Outlook for tractor business on the back of
good monsoons and revival in rural
demand
Impact of agri reforms on farm segment
Progress on Kubota tie up
Hero
MotoCorp WEAK
We expect a decline in revenue of 66% YoY,
due to a 69% drop in volumes
We expect the margin to contract by
450/70bps YoY/QoQ to 9.9%
PAT to decline by 66/58% YoY/QoQ to Rs
2.59bn
Demand outlook in the rural areas, as these
regions are less impacted by COVID
Near term demand trends as Jun sales were
above expectations
Mahindra WEAK
Revenue to decline by 55% YoY owing to a
similar drop in volumes, though tractor vols
surprised
EBITDA margin at 13% to contract by
100/65bps YoY/QoQ
PAT decline of 66% YoY, -6% QoQ to Rs 3bn
Outlook for tractor business
The price hikes on its diesel model range
due to the emission rollover
Broader company strategy with regards to
overseas subsidiaries / capital allocation
Maruti Suzuki WEAK
We except revenues to decline by ~80% YoY
and QoQ. Volumes dropped 80% YoY.
EBITDA margin to contract by 240/50bps
YoY/QoQ to 8%
PAT to decline by 82/80% YoY/QoQ to Rs
2.55bn
Demand outlook in the current
macroeconomic backdrop
Sales mix of petrol / diesel variants for
small and mid-sized vehicles
Market share trends
Page | 6
1QFY21E Results Preview
COMPANY 1QFY21
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Tata Motors WEAK
Standalone: Volumes declined 81/75%
YoY/QoQ. We expect a similar drop in
standalone revenues as well. We expect the
co to report and EBITDA loss of Rs 1.25bn
JLR margins to decline 80bps QoQ to 4%
We expect a consolidated loss of Rs 65.2bn
India business outlook and prospects for
strategic partnership in the India PV
segment
JLR – recovery trends in China and ROW
Endurance
We expect a revenue decline of 35/22%
YoY/QoQ.
EBITDA margin at 13.7% to contract by
420/120bps YoY/QoQ.
PAT at Rs 458mn to decline by 72/57%
YoY/QoQ.
Status of new order implementation as
RFQs have been encouraging
Outlook on industry growth trends
Subros WEAK
We expect sales to decline 60% YoY owing
to weak macroeconomic environment
EBITDA margin is expected at 8.5% (-110bps
YoY, -60bps QoQ)
We expect a loss of Rs 16mn
Expectations for volume recovery in
Passenger vehicle segment
Demand outlook for the home AC business
Gulf Oil WEAK
We expect revenue to decline by 24/7%
YoY/QoQ
Operating margin to contract by 270/40bps
YoY/QoQ to 15%
We expect PAT to decline by 28% YoY to Rs
351mn
Outlook on demand environment due to
the ongoing slowdown in auto industry
RM price trends as oil prices have
corrected sharply
CONCOR WEAK
Volumes in 1Q declined 21/22% YoY/QoQ.
We expect sales to decline 25/221%
YoY/QoQ.
EBITDA margin is expected at 27.1%
(-200bps QoQ)
We expect PAT to decline by ~10% YoY to
Rs 2bn.
Revised timelines on commissioning of the
DFC
Outlook for EXIM volumes in the current
downturn
Update on divestment initiatives by the
government
Gateway
Distriparks WEAK
We expect consolidated revenues to decline
by 25/21% YoY/QoQ
Operating margin at 20.7% to contract by
80bps QoQ, +95bps YoY
We expect profit to fall to Rs 7mn (vs. Rs
112mn QoQ)
Status of Snowman’s stake sale, after the
deal with Adani has been called off
Subsequently, what are the revised
deleveraging initiatives
Source: HSIE Research
Page | 7
1QFY21E Results Preview
1 year forward Price/Earnings
Bajaj Auto Eicher Motors
Source: Bloomberg, Company, HSIE Research Source: Bloomberg, Company, HSIE Research
Escorts Hero Motocorp
Source: Bloomberg, Company, HSIE Research Source: Bloomberg, Company, HSIE Research
Mahindra & Mahindra Maruti Suzuki
Source: Bloomberg, Company, HSIE Research Source: Bloomberg, Company, HSIE Research
4
8
12
16
20
24
Jul-
09
Jul-
10
Jul-
11
Jul-
12
Jul-
13
Jul-
14
Jul-
15
Jul-
16
Jul-
17
Jul-
18
Jul-
19
Jul-
20
PE Mean +1 SD -1 SD
24
26
28
30
32
34
36
38
40
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
Jan
-19
Jul-
19
Jan
-20
Jul-
20
P/E
5
10
15
20
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
Jan
-19
Jul-
19
Jan
-20
Jul-
20
P/E Mean +1 SD -1 SD
6
12
18
24
Jul-
07
Jul-
08
Jul-
09
Jul-
10
Jul-
11
Jul-
12
Jul-
13
Jul-
14
Jul-
15
Jul-
16
Jul-
17
Jul-
18
Jul-
19
Jul-
20
PE Mean +1 SD -1 SD
5
15
25
35
45
Jul-
07
Jul-
08
Jul-
09
Jul-
10
Jul-
11
Jul-
12
Jul-
13
Jul-
14
Jul-
15
Jul-
16
Jul-
17
Jul-
18
Jul-
19
Jul-
20
P/E Mean +1 SD -1 SD
0
5
10
15
20
25
30
Jul-
07
Jul-
08
Jul-
09
Jul-
10
Jul-
11
Jul-
12
Jul-
13
Jul-
14
Jul-
15
Jul-
16
Jul-
17
Jul-
18
Jul-
19
Jul-
20
P/E Mean +1 SD -1 SD
Page | 8
1QFY21E Results Preview
Endurance Subros
Source: Bloomberg, Company, HSIE Research Source: Bloomberg, Company, HSIE Research
Gulf Oil CONCOR
Source: Bloomberg, Company, HSIE Research Source: Bloomberg, Company, HSIE Research
10
20
30
40Ju
l-1
1
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
Jan
-19
Jul-
19
Jan
-20
Jul-
20
P/E Mean +1 SD -1 SD
15
25
35
45
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
P/E Mean +1 SD -1 SD
15
20
25
30
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
Jan
-19
Jul-
19
Jan
-20
Jul-
20
PE Mean +1 SD -1 SD
5
15
25
35
45
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
Jan
-19
Jul-
19
Jan
-20
Jul-
20
PE Mean +1 SD -1 SD
Page | 9
1QFY21E Results Preview
HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board: +91-22-6171-7330 www.hdfcsec.com
Disclosure:
We, Aditya Makharia, CA & Mansi Lall, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report
accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also
certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC
Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication
of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock –YES
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Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential