CLSA Downgrades Two-Wheeler Majors Due to Valuation Concerns
In a notable development, prominent two-wheeler manufacturers Bajaj Auto, Hero MotoCorp, and Eicher Motors have come under focus after a downgrade by CLSA on December 6. The global brokerage firm downgraded these stocks, citing concerns over their already fair valuation following a recent sharp rally. Simultaneously, CLSA maintained its “sell” call for TVS Motor, expressing apprehensions.
Despite these stocks witnessing a surge ranging between 14% and 23% in the past month, fueled by robust sales during the festival season and optimistic growth expectations, CLSA expressed reservations. The brokerage firm anticipates challenges in electric two-wheeler margins in the near term due to various original equipment manufacturers (OEMs) planning to introduce more affordable electric scooters.
Specifically, CLSA downgraded Bajaj Auto to “underperform” from “outperform,” setting a target price of Rs 6,382 per share. Eicher Motors also faced a downgrade to “underperform” from “buy,” with a target price of Rs 4,129. Hero MotoCorp’s rating shifted to “outperform” from “buy,” accompanied by a revised target price of Rs 4,127. TVS Motor maintained its ‘sell’ position, with a target price of Rs 1,378.
On the contrary, JPMorgan analysts took an optimistic stance, designating Bajaj Auto, Hero MotoCorp, and TVS Motor as “overweight.” JPMorgan raised their target prices to Rs 6,400, Rs 3,750, and Rs 1,830, respectively. This endorsement, coming ahead of the November numbers, suggested a positive outlook for the two-wheeler stocks in India, one of the largest markets globally for motorcycles and scooters.
November witnessed robust demand in the domestic two-wheeler segment, driven by the festival season, resulting in approximately 20-21% year-on-year growth. Hero Moto’s volumes surged by 26%, TVS Motors reported a 31% YoY increase, Royal Enfield saw a 13% YoY rise, and Bajaj Auto recorded a 32% YoY increase in overall volumes.
Hero MotoCorp and Bajaj Auto reportedly gained market share during the festival season, partly due to supply-chain challenges faced by Honda. Analysts at Kotak Institutional Equities noted that strong festival demand was fueled by the recovery in the replacement segment, primarily driven by the rural segment and consumer support. Export trends remained subdued, influenced by weaknesses in African and South Asian markets.
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