Two-wheelers stocks change gears, prices run up in FY21; do you own any? The share price of Bajaj Auto, Eicher Motors, Hero MotoCorp and TVS Motor gain 80-100 percent in FY21, so far. In comparison, BSE Auto index gained 113 percent. In the financial years 2019 and 2020, two-wheeler stocks were in the slow lane
March 23, 2021 / 12:20 PM IST
India’s two-wheelers (2W) stocks, such as Bajaj Auto, Eicher Motors, Hero MotoCorp and TVS Motor, have seen a phenomenal run-up in FY21. The share price of these companies have gained between 80 percent and 100 percent in FY21 so far. In comparison, BSE Auto index gained 113 percent. In the financial year 2019 and 2020, two-wheeler stocks were in the slow lane with most of them giving negative returns. According to a Nirmal Bang research report, "India’s two-wheeler industry entered slow lane in late 2018 due to rising cost of ownership, tepid economic growth and weak consumer sentiment. We expect the 2W industry’s growth to moderate to mid-to-low single-digit CAGR over the medium term. Sustained export momentum should provide an additional growth lever to 2W original equipment manufacturers (OEMs) with a higher export exposure. Against this backdrop, we reinitiate coverage on the 2W industry with a “neutral” stance. We recommend a BUY rating on TVS, Bajaj Auto, and Accumulate rating on Hero MotoCorp and Eicher Motors." Here is the performance of four listed two-wheeler companies:
Eicher Motors | In FY21 so far, the stock has gained 104 percent to Rs 2,677 on March 22, 2021, from Rs 1,310 on March 31, 2020. However, in the fiscal year, FY19 and FY20, the stock was down 28 percent and 36 percent, respectively. "With the recent production ramp-up issues largely behind, we expect volume to remain relatively strong, led by urban demand recovery, new models, network expansion and exports. However, our analysis on state-wise registration trends indicates that Royal Enfield (RE) has been witnessing growth moderation in most matured markets since FY14 (with overall share in retails coming off from 75%+ in FY14 to ~55% in FY20). We expect RE’s profitability to remain range-bound in the near term due to commodity cost pressures. While we remain constructive on the near-term demand outlook, we believe that market expectations about the demand turnaround remain elevated," Nirmal Bang said in the report. It has given an Accumulate rating and a target price of Rs 2,575.
TVS Motor Company | In FY21 so far, the stock has gained 95 percent to Rs 580 on March 22, 2021, from Rs 298 on March 31, 2020. However, in the fiscal year FY19 and FY20, the stock was down 24 percent and 37 percent, respectively. "TVS has outperformed on margin expectations over the last two quarters, delivering >9% EBITDA margin, supported by price hikes, better mix and cost controls. Our analysis of state-wise registration trends indicates steady market share gains for TVS across most states, supported by improving brand franchise, new product launches, and presence in high-growth categories (scooters and premium motorcycles). We note that the gains have been broad-based with TVS outperforming both Hero and Bajaj in 20 out of the 23 states analyzed both on volume and market share gains (over FY14-FY20)," said the Nirmal Bang report. It reinitiated coverage on TVS with a BUY and a target price of Rs 684.
Hero MotoCorp | In FY21 so far, the stock has gained 94 percent to Rs 3,096 on March 22, 2021, from Rs 1,596 on March 31, 2020. However, in the fiscal years FY19 and FY20, the stock was down 28 percent and 37 percent respectively. "Hero Moto has maintained its dominant position in the domestic motorcycles segment (>50%) despite an increase in competitive intensity over the years. However, it has lost >550bps two-wheeler market share over FY14-20 due to a weak presence in the fast-growing segments. Our deep dive analysis of state-wise registration trends indicates that Hero has not only lost significant market share in matured markets (as expected), but has also failed to keep pace in relatively under-penetrated markets over FY14-20. We expect structurally weak demand trends in the domestic market and higher dependence on the commuter segment (~90% volume share in FY20) to lead to volume under-performance versus peers," said the Nirmal Bang report. It re-initiated coverage on Hero with Accumulate rating and a target price of Rs 3,300.
Baja Auto | In FY21 so far, the stock has gained 81 percent to Rs 3,664 on March 22, 2021, from Rs 2,022 on March 31, 2020. However, in the fiscal years FY19 and FY20, the stock was up 6 percent and down 31 percent, respectively. "We are enthused by Bajaj Auto’s solid execution in filling the white spaces in the domestic 2W portfolio (launch of Pulsar 125cc) and the recent shift in strategy to focus on margins (over volume). Bajaj has improved its domestic portfolio profitability through smart price actions and premium launches while broadly maintaining its market share. The company expects the domestic 2W industry to register a growth of 15-20% in FY22 on a low base. We believe that a strong export outlook should hold given the following (1) stable oil prices (2) scope for further recovery in ASEAN and Sri Lankan markets, and (3) dealer re-stocking and market share gains," the Nirmal Bang report said. It reinitiated coverage on Bajaj with a BUY rating and a target price of Rs 4,250.