Hero MotoCorp Vs Eicher Motors: Should you buy Royal Enfield maker after 12% share price drop?

Shares of Royal Enfield (RE) maker Eicher Motors fell nearly 12 per cent so far this week as a significant rise in competitive intensity has changed the business dynamics unfavourably for RE.

During the week, both Harley Davidson (in partnership with Hero MotoCorp) and Triumph (in partnership with Bajaj Auto) have launched cruiser bikes at extremely competitive and similar price points, which are marginally higher than RE’s best-selling Classic 350cc (Chrome).

As a result, shares of Eicher Motors plunged 11.89 per cent to Rs 3,197.45 apiece in early trade on July 7 from Rs 3,629.05 on July 3. On the other hand, shares of Hero MotoCorp and Bajaj Auto gained 8.46 per cent and 6.65 per cent, respectively. The benchmark BSE Sensex added 0.40 per cent during the same period.

Ajit Mishra, SVP—Technical Research, Religare Broking, said, “Eicher Motors looks oversold now, which might prompt some rebound, but the upside seems capped citing multiple hurdles around the Rs 3,300-3,410 zone. On the downside, it should hold the 3,040-3,150 zone. Traders should avoid any fresh position and wait for the stock to come closer to the key levels.”

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Sales of Royal Enfield motorcycles increased 22 per cent YoY to 227,706 units during Q1FY24 against 187,205 units in the year-ago period. Sales of models with engine capacity of up to 350cc grew 30 per cent to 202,430 units in the June quarter, while models with higher engine capacity saw a 20 per cent drop to 25,276 units.

Meanwhile, shares of Hero MotoCorp have also ended a nearly 2-year-long consolidation phase. “The price action combined with a strong surge in the volumes indicates the prevailing tone to continue and it retest the previous swing high zone of Rs 3,350-3,460 soon. In case of any dip, the Rs 2,900-3,020 zone would offer the cushion. Participants should look for buying opportunities around the support area,” Mishra said.

HDFC Securities lowered earnings estimates for Eicher Motors by 16-18 per cent over FY24-FY25. “We lower our volume growth and margin assumptions. As a result, our target price is reduced to Rs 3,086 per share (from Rs 3,715 per share earlier),” the brokerage said.

Milan Vaishnav, CMT, MSTA, Technical Analyst and Founder, Gemstone Equity Research and Advisory, said, “Following formation of a high near Rs 3,890 in November 2022 last year, Eicher has formed a lower high near Rs 3,700. The violation below Rs 3,535 has infused incremental weakness as the stock violated its 50-DMA. Presently, it has slipped below its 100 and 200-DMA as well. The stock stands mildly oversold on the daily charts and it may try and find some base around current levels.”

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He further added that any violation of Rs 3,150 will invite incremental weakness. While there are no triggers for any fresh entry in the stock, Investors may stay invested and use any technical pullbacks to exit while maintaining a stop-loss of Rs 3,150.

Commenting on Hero MotoCorp, Vaishnav said, “The auto major formed a base for itself near Rs 2,260-2,300 zone in March this year; the subsequent technical rebound that followed took the stock above all key moving averages. An incremental breakout was achieved when the stock crossed above 200-DMA in May this year when it moved above Rs 2,650-2,700 zone. While the stock has moved higher, it has dragged its support levels higher as well. Presently, the stock has strong support in the Rs 3,000-3,050 zone. So as long as it keeps its head above these levels, the primary uptrend stays intact. Any violation of this support zone will send the stock into some consolidation in the form of a secondary trend.”

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