Short Call | An expensive entry ticket; Hero MotoCorp, Honasa, and Suzlon Energy in focus

Short Call

A divergent trend has emerged over the past few years, where the stocks entering the Nifty 50 are far more expensive than the stocks exiting the benchmark.

With the NSE green lighting 45 stocks to be included in the F&O segment, the likelihood of Zomato and Jio Financial Services entering the headline index has surged, with analysts pencilling in the probability of a March entry.

However, Zomato and JFS have a trailing P:E of 307x and 118x, respectively, while Eicher Motors and BPCL, the stocks that would leave the index, have a trailing P/E of 25.5x and 9.9x.

Interestingly, a report by ICICI Securities pointed out that since FY18, the P/E of inclusion stocks at the time of index change was ~ 60x which was six times higher the median P/E of exclusion stocks that stood at ~10x.

While pricey valuations for consumption players and poor earnings has made the index more expensive, the entry of a stream of new entrants with lofty valuations such as Trent and BEL, has also contributed to this rush. ⁩

For now, it’s pretty clear that the market’s definition of entry-level has clearly raised the bar!

Hero MotoCorp (Rs 4,728, +2.7%)

Shares rose after brokerages like Jefferies, Nomura, and Nuvama Institutional Equities reiterated their 'Buy' ratings on the stock following its Q2FY25 earnings.

Bull Case: Poised to benefit from the 2W industry upcycle, driven by strong brands, recent launches like Xtreme 125R, and upcoming models including Vida Z EV, Xpulse 210, Xtreme 250R, and Karizma XMR 250. Is a key beneficiary of the likely uptick in rural demand. Company is seeing good traction in Columbia and Mexico.

Bear Case: The company's declining market share in two-wheelers and unfavourable demand profile shifts remain key concerns. Hero FinCorp experienced a slight rise in credit costs.

Honasa Consumer (CMP: Rs 295 | -20%)

Stock hits 52-week low on disappointing Q2 results

Bull case: Analysts at JM Financial believe that the company's measures in undertaking phase-wise restructuring of offline channel (enhancing direct reach & right size the inventory levels) should improve the effectiveness of the channel and help fortify its position in core categories.

Bear case: Honasa's Q2 print was weak and the ride ahead is bumpy. Emkay analysts believe to see decline in FY25E and aims to recover its base in FY26E. Limited offline presence and slower growth in core brands may pave the way for the competition, where recouping in the long term would be daunting.

Suzlon Energy (Rs 59, +4.16%)

Shares bounce back to rally 10 percent in two sessions following a sharp correction in the stock.

Bull Case: Suzlon has a strong business moat and that, coupled with the growth opportunity for wind Original Equipment Manufacturers (OEMs) bodes well for the company. Robust order inflow at ~1.6 GW led to an all-time high order book of 5.1 GW, suggesting revenue visibility.

Bear Case: A delay in fulfilling the order book could possibly affect the financials of the company.

(With inputs from Neeshita, Lovisha, and Veer)