Shares of Eicher Motors rose nearly 2% in early trade on Tuesday, reversing their downward trend after five sessions. The auto heavyweight has corrected 12.6% in the past five trading days after Bajaj Auto and Hero MotoCorp launched premium motorcycles in association with British brand Triumph and U.S. brand Harley Davidson, respectively.
Early today, Eicher Motors shares opened at ₹3,186.05, up 0.4% against the previous closing price of ₹3,173.85 on the BSE. In the first two hours of trade so far, the auto stock gained as much as 2.2% to ₹3,245.35, with 10,000 shares changing hands over the counter on the BSE. The market capitalisation rose to ₹88,519 crore.
At the current price level, Eicher Motors shares trade 16% lower than its 52-week high and 14% higher than its 52-week low levels. It hit a 52-week high of ₹3,886 on November 1, 2022, and a 52-week low of ₹2,835.95 on March 28, 2023.
Eicher Motors has underperformed the auto index in the last one year, with the share price of the Royal Enfield’s owner rising 10% in 12-month compared to 29% growth in the S&P BSE Auto index. In the current calendar year 2023, the stock has given flat returns as against a 24% rise in the BSE Auto index. In the 3-month period, the largecap stock has risen nearly 9% versus 23% surge in the auto index. The counter has fallen 10% in a month and 3.5% in a week.
Despite recent corrections, domestic brokerage firm ICICI Securities has upgraded Eicher Motors to “BUY” from “Add” and retained the price target at ₹4,039, an upside potential of 27% from Monday’s closing price.
The agency said that Eicher Motors has corrected by 12% and is trading at around 20x FY25E earnings. The stock saw selling pressure after the launch of Harley Davidson X 440 and Triumph Speed 400 by Hero MotoCorp and Bajaj Auto, respectively. HDX 440 was launched in India last week under the collaboration of Hero MotoCorp and Harley Davidson, with on-road price (Delhi) ranging between ₹270k to ₹310k per unit. Speed 400 by Triumph under collaboration with Bajaj Auto, with on-road price per unit (Delhi) at Bajaj Auto 263k, under promotional pricing for an initial 10k units.
“We believe the steep reaction was unwarranted as the premium 2-wheeler market in India itself would expand with rising alternatives. In the past 4 years, as per our calculation, total cost of ownership (TCO) of Royal Enfield Classic 350 motorcycle saw 7% CAGR, higher than the disposable income growth during this period, impacting affordability of customers,” it said in a report.
The brokerage further stated that brand Royal Enfield (RE) registered a domestic volume decline of 1.5% CAGR in FY19-FY23, while domestic 2-wheelers witnessed a negative 5% CAGR. “This took the 250cc+ motorcycle (MC) model mix to 8% in FY23 vs 6% in FY19. For FY24E-FY26E, we do not see any major TCO inflationary catalyst, thus pushing the premium MC mix to 9.5%, resulting in 14% volume CAGR in FY23-FY26E.”
“We believe, even after RE volume CAGR of 9% in FY23-FY26E, the domestic 250cc+ motorcycle market excluding RE would likely be around 20k units a month by FY26 – enough, we believe, to absorb the new global brands coming in,” it added.
For the Royal Enfield portfolio, around 10% of domestic retails comes from ₹260k+ on-road models. With promotional pricing of the launched models to go away after retailing a pre-specified number of units (10k units for Speed 400), the price gap with RE would only expand further, the brokerage said.
Meanwhile, ICICI Securities has retained “Add” ratings on Hero MotoCorp and Bajaj Auto with revised price targets of ₹3,490 and ₹5,185, respectively. “With the launch of HD X440 and Speed 400 by Hero MotoCorp and Bajaj Auto respectively, we expect the domestic premium biking space to get further boosted. This would enhance the portfolio of offerings from both companies and give visibility of higher revenue CAGR in the longer run,” it said.
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