JP Morgan has launched coverage of Indian two-wheelers (2W) with a cautious approach as it expects cyclical improvement in volumes but a major share may be captured by electric vehicles (EVs). Electrification should be accelerated by liberal subsidies as well as aggressive capacity additions.
“2W ICE OEMs (Original Equipment Manufacturers) have been able to offset commodity inflation through regular price increases, but volume growth has suffered. We expect profits to improve gradually but if the EV stock rises sharply, the upward momentum may not be sustained. Our EPS forecasts are 1-20% below consensus,” JPM said in a note.
TVS is its choice stock picking Within Indian 2 wheeler. TVS has consistently improved its market share/margin. On the other hand, Bajaj Auto has the most diversified revenue base.
“We like TVS (top pick) and BJAUT for their revenue diversification as well as presence (albeit small) in EV segment within Indian 2W. We are negative on EIM as the company is no longer outperforming its peers, but continues to trade at a significant premium.”
It has started coverage on TVS Motor with overweight rating and price target ₹725 while Bajaj Auto’s overweight rating comes with a price target of ₹4,500 per share.
Hero MotoCorp (HMCL) is almost entirely dependent on domestic 2W (95%). It has an indirect EV presence through Ather (35% stake) and will launch its EVs by March-22. It added that Eicher Motors’ (EIM) volumes and profitability have been less resilient than its mass-market rivals.
JPM has a neutral rating with Hero Moto and is a price target ₹3,110. It has launched coverage on Eicher Motors with an underweight rating and price target ₹2,350.
“We will be monitoring monthly EV volumes, EV model launch/capacity announcements and quarterly margin trends for ICE OEMs,” JPMorgan said.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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