Shares of Eicher Motors Limited traded almost 2 percent lower at Rs 3,720 on January 17, extending losses for the second day after CLSA downgraded the stock to "sell" from an "underperform" rating amid valuation concerns, the second brokerage firm to do so in as many days.
CLSA analysts said the stock is overvalued after the recent rally, as valuations are pricing in double-digit volume growth over the next few years, which seems unlikely.
At 11.28 am, the stock was trading at Rs 3,761, down 0.8 percent from the previous close on the NSE. In the last year, the stock has gained 18 percent, slower than the Nifty's 21 percent during the period.
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The company lowered the target price to Rs 3,716 from Rs 4,129. Stiff competition from players such as Hero Motocorp and Bajaj Auto could impact Royal Enfield figures, it said.
Also read: Eicher faces a Himalayan challenge in H2; Hero MotoCorp, Bajaj Auto set to zip fast
CLSA is the second brokerage to downgrade Eicher in two days. On January 16, Morgan Stanley downgraded the stock to "underweight" from "equal-weight" and cut the target price.
Also Read: Analyst Call Tracker | Why Tata Motors dazzled in 2023 but Eicher dimmed out?
Morgan Stanley highlighted growth and market share challenges, limited margin upside and high valuations as the key reasons for the downgrade.
"While RE (Royal Enfield) has faced competition in the past also, this time it is different as the competition is coming from (1) global iconic brands and (2) The products would be supported by experienced and established mass market players which have both financial and distribution muscles," analysts at Dolat Capital said in an earlier report.
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