The international brokerage CLSA has downgraded two-wheeler companies, including Bajaj Auto Ltd and Eicher Motors Ltd after the recent rally in the industry, But upgraded Hero MotoCorp Ltd.
While CLSA expects premium bikes to increase from 22.6% in 2023 to 26.9% in 2026, the two-wheeler sector to rise by 10% compounded annual rate in FY 24-26, with motorcycle volumes increasing by 8%, scooters by 13%, and mopeds by 8%
The brokerage said that margins for electric two-wheelers are anticipated to remain challenging in the near term, as all OEMs have plans to launch more affordable electric scooters. “Since industry volumes are still below the previous peak, industry volume growth is likely to be supported by replacement demand and faster growth in the premium segment”.CLSA noted.
The two major auto stocks took a dent in Wednesday’s trading session after the brokerage firm CLSA downgraded the stock while reducing its stock price.
Bajaj Auto Ltd
The shares of Bajaj Auto Ltd fell by 3% to an intraday low of ₹7,082 apiece. The company has a market capitalization of ₹2,02,967 crores.
CLSA downgraded Bajaj Auto to ₹ 6,315 per share, This implies a downside of 12 percent from the Wednesday close of ₹ 7,165.
They have also reduced the two- and three-wheeler major’s volume expectations by 5% and 6.5 percent for FY24 and FY25, respectively. Analysts believe the stock is overpriced considering the recent surge.
Further, the brokerage firm has turned cautious as valuations are pricing in double-digit volume growth over the next few years, which seems unlikely.
Bajaj Auto shares have witnessed a rise of 47% in the last six months and 98% in a year.
The company’s revenues increased by 6 percent year on year from ₹10,203 crores in Q2FY23 to ₹ 10,838 crores in Q2FY24, while net profit increased by 17% from ₹1,719 crores to ₹ 2,020 crores.
Eicher Motors Ltd
The shares of Eicher Motors Ltd fell by 3% to an intraday low of ₹3,730 apiece. The company has a market capitalization of ₹ 1,02,713 crores.
CLSA has downgraded the stock to “sell” from an “underperform” rating amid valuation concerns and CLSA has given a target of ₹3,716 from ₹4,129 which implies a downside of nearly 1 percent from the Wednesday close of ₹ 3,746.
The brokerage lowered the price due to stiff competition from players such as Hero Motocorp and Bajaj Auto could impact Royal Enfield figures.
The company’s revenues increased by 17 percent year on year from ₹3,519 crores in Q2FY23 to ₹ 4,115 crores in Q2FY24, while net profit increased by 54% from ₹657 crores to ₹ 1,016 crores.
Eicher Motors shares have gained 12 percent in the last six months and 18 percent in a year.
On contrast CLSA upgraded Hero MotoCorp
Hero MotoCorp Ltd
The shares of the world’s largest two-wheeler manufacturer rose nearly 1 percent to an all-time high price of ₹4,424.20 apiece. The company has a market capitalization of ₹87,377 crore.
Hero MotoCorp shares have gained 40 percent in the last six months and 57 percent in a year.
The brokerage maintained an ‘outperform’ call on the stock with a target of ₹4,964 from ₹4,127 per share, with an upside of 14%, based on the wednesday’s close price of ₹4,368.
The brokerage estimates a company can benefit based on the increase in volume in the premium motorcycle and electric scooter segment.
The company’s revenues increased by 4 percent year on year from ₹9,158 crores in Q2FY23 to ₹9,533 crores in Q2FY24, while net profit increased by 47% from ₹682 crores to ₹ 1,007 crores.
Written by Omkar Chitnis
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