Bajaj Auto, Hero Nov sales surge. Should you buy the stock?

It is usually a lean period for automakers right after the festive season. However, this time two-wheeler makers, especially, Hero MotoCorp and Bajaj Auto , have surprised positively with robust sales growth in November.

Will the momentum last? Quite likely say analysts, given the ongoing wedding season and strong rural demand. But don't rush to the market to buy the shares, as valuations are already expensive and upsides may be limited, they say.  

Bajaj Auto earlier on Friday said its total sales in November were highest ever recorded for the month. It sold 3.74 lakh units, up 25% from a year ago last month. While motorcycle sales rose 25%, three-wheeler sales were up 24% and exports jumped 42% from a year ago.

Hero MotoCorp on Thursday evening said its sales accelerated 27% year-on-year to 5.37 lakh units, also its highest ever for a month of November.

"This data is consistent with our channel checks that retail demand is strong for rural India. We believe that there may have been some channel filling in this month as well, however, clearly there is no slowdown," noted Nomura's Kapil Singh and Nishit Jalan.

Around 45% of Hero MotoCorp's total sales come from rural India.

"The strong growth in sales was positively surprising, more so for Hero MotoCorp. Post festive season period is usually cool. But this year inventory buildup and the marriage season seems to be driving sales," Vineet Hetamasaria, vice-president – research at Pinc told moneycontrol.com.

He expects Hero MotoCorp to maintain a run rate of around 5.25 lakh unit sales per month till March. Bajaj Auto should also manage to sell 3.75-3.8 lakh units per month over the next four months, Hetamasaria said.

Mehul Desai of KR Choksey Shares had a different opinion.

"Bajaj Auto's and Hero MotoCorp's November sales were better than market expectations…But it may be difficult to sustain this growth going ahead given increased competitive intensity, and macro economic conditions also don't support it," Desai told moneycontrol.com.

Moreover, with rising competition and increasing push in rural markets, the companies have had to increase their A & P [advertising & sales promotion] and marketing spends, which would put pressure on margins he said.

Stocks of both Bajaj Auto and Hero MotoCorp have significantly outperformed this year and so there is not much upside left on the stocks, say analysts. Hero MotoCorp shares have risen over 31% since April this year, and Bajaj Auto is up over 16%, while the wider NSE Nifty is down over 15% during the same period.

Although Hetamasaria still has maintained a "buy" rating on Bajaj Auto, his price target of Rs 1,850 indicates, there's only 8% upside left in the stock. On Hero MotoCorp, he recommends that investors "reduce" the stock on any rise in share price.

Nomura too only has a "neutral" rating on Hero MotoCorp, while KR Choksey recommends a "hold" on both the companies.

On Friday, Bajaj Auto shares closed at Rs 1,714.55, up 0.6% from Thursday's close. Hero MotoCorp ended down 0.4% at Rs 2,080.95.

Nachiket Kelkar
nachiket.kelkar@network18online.com