Revamping Outlook: CLSA’s Recent Downgrades for Bajaj Auto, Hero Moto, and Eicher Motors


Unveiling the Concerns Behind CLSA’s Downgrades

In the whirlwind of the stock market, two-wheeler giants, including Bajaj Auto, Hero MotoCorp, and Eicher Motors, have recently faced a downgrade by CLSA. This strategic move by the financial experts stems from the perceived fair valuation, following a remarkable 14 to 23 percent surge in the past month. However, the spotlight remains on the challenges anticipated on the margins of electric two-wheelers (2Ws) in the immediate future.

Festival Boost: November’s Two-Wheeler Segment Performance

November witnessed a robust 20-21 percent year-on-year growth in the domestic two-wheeler segment, fueled by a surge in festival demand. As the festive season unfolded, major players such as Bajaj Auto, Hero MotoCorp, and Eicher Motors experienced a substantial uptick in sales.

CLSA’s Individual Assessments and Target Price Adjustments

CLSA’s detailed evaluations have resulted in specific downgrades and target price adjustments for key players:

Bajaj Auto: Downgraded to “Underperform” from “Outperform,” with a revised target price of Rs 6,382 per share, compared to the previous day’s closing at Rs 6,139.

Eicher Motors: Shifted to “Underperform” from “Buy,” with a target price of Rs 4,129, slightly lower than the closing figure of Rs 4,136.

Hero MotoCorp: Shifted to “Outperform” from “Buy,” accompanied by a revised target price of Rs 4,127.

TVS Motor: Maintained a “Sell” position, with a target price of Rs 1,378.

Contrasting Perspectives: JPMorgan’s Overweight Stance

In contrast to CLSA’s cautious outlook, JPMorgan, a global brokerage firm, expressed an “Overweight” stance on Bajaj Auto, Hero MotoCorp, and TVS Motor. Notably, they raised their target prices to Rs 6,400, Rs 3,750, and Rs 1,830, respectively. This optimistic view from JPMorgan, released just before the November numbers, hinted at a positive trajectory for the two-wheeler stocks in India, a significant market for motorcycles and scooters.

Digging Deeper into November’s Performance

Festival-Driven Surge in Demand

The surge in domestic two-wheeler demand in November can be attributed to the festive season, constituting a substantial 20-21 percent year-on-year growth. Key players witnessed remarkable volume increases:

Hero MotoCorp: 26 percent surge in volumes.

TVS Motors: Impressive 31 percent year-on-year increase in volumes.

Royal Enfield: 13 percent year-on-year volume increase.

Bajaj Auto: Reportedly, an outstanding 32 percent year-on-year increase in overall volumes.

Market Dynamics During Festive Season

During the festive season, Hero MotoCorp and Bajaj Auto managed to gain market share, partially owing to supply chain challenges faced by Honda, leading to key model shortages. Kotak Institutional Equities analysts emphasized that robust festival demand was fueled by a recovery in the replacement segment, driven by the rural sector and consumer support. Export trends, however, remained subdued due to weaknesses in African and South Asian markets.

In conclusion, while CLSA’s cautionary downgrades reflect concerns over valuations, the contrasting perspective from JPMorgan and the positive November performance indicate a nuanced landscape in the dynamic world of two-wheeler stocks. Investors must navigate these varied signals to make informed decisions in this ever-evolving market.

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