CLSA says sell Bajaj Auto, TVS Motor and Eicher Motors shares. Here's why

CLSA has turned cautious on domestic two-wheeler stocks following the recent rally. The foreign brokerage has cut its ratings on two-wheeler stocks namely Bajaj Auto Ltd and Eicher Motors Ltd (Enfield maker) to 'Sell'  and retained a similar view on TVS Motor Ltd, as it finds the three stocks overvalued. It prefers Hero MotoCorp Ltd in the sector.

CLSA said it has downgraded Bajaj Auto and Eicher Motors to 'Sell' from 'Underperform' falling the recent rally as valuations are pricing in double-digit volume growth over the next few years, which is unlikely. It has maintained its 'Sell' call on TVS Motor.

CLSA said it expects two-wheeler industry to grow at a 10 per cent growth compounded annually in FY24-26, with motorcycle volumes expanding 8 per cent, scooters 13 per cent and mopeds 8 per cent. Since the industry volumes are still below the  previous peaks, it would be supported by replacement demand nd faster growth in the previous segment, CLSA said.

The foreign brokerage added that Bajaj Auto, TVS Motor and Hero MotoCorp are also launching new products, which should help them gain market share. 

"We expect the share of premium motorcycles to climb from 22.6% in 2023 to 26.9% in 2026, which would help OEMs to improve net realisation. Within the premium motorcycle segment, we expect the >250 ce segment to gain further share due to new launches. With the launch of Harley and Triumph models, we expect Hero and Bajaj to gain market share from Royal Enfield in the premium motorcycle segment," CLSA said.

That said it has lower its target price for Bajaj Auto to Rs 6,315 from Rs 6,382 as it cut its FY24 and FY25 volume assumptions by 4.7 per cent and 6.3 per cent, respectively. It downgrade the Bajaj Auto stock as believe it is expensive.

In the case of Eicher Motors, CLSA cut its target to Rs 3,716 from Rs 4,129 to as it expects new competitors (Harley and Triumph) to gain market share from Royal Enfield.

Meanwhile, it maintained its ‘Outperform’ on Hero MotoCorp and increased its target price to Rs 4964 from Rs 4167 as it increased its volume estimates for premium motorcycles and electric scooter segment.  CLSA maintained its 'Sell' on TVS Motor with a revised target of Rs 1,428 from Rs 1,378.

 

 

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