Hero MotoCorp Vs Bajaj Auto: Goldman Sachs’ Pick
Goldman Sachs initiated coverage on Hero MotoCorp Ltd. with a ‘sell', but suggested a ‘buy' for peer Bajaj Auto Ltd.
“We see the risk reward on Hero as unfavourable given high dependency (94% of volumes) on domestic two-wheeler market where demand remains subdued, concentrated portfolio in entry-level sub-110 cc segments where customers are more vulnerable to the present wave of raw material-led price hikes, and higher loan losses than peer at captive financing subsidiary,” the financial services provider said in a March 3 report.
These factors, it said, drive its 3.1% FY19 to FY25E top line CAGR at Hero MotoCorp versus 8% median growth for India two-wheeler coverage. “Our FY24E EPS is 20% below consensus.”
“Diversification away from the entry-level segment, an increase in exports penetration and the nature of response to Hero's upcoming fixed and swappable battery electric scooter launches are the key events that we would watch to see success on in order to turn more optimistic.”
On the other hand, Bajaj Auto's “meaningful export market exposure in two-wheelers, offsetting ongoing domestic demand weakness, upcoming cyclical recovery in higher margin three-wheeler demand, its industry leading dividend yield of 5.4%” prompts Goldman Sachs to bet on the Pune-based company.
“These factors underline our FY22E-FY25E EPS CAGR of 21%, with FY24E EPS 6% above consensus.”
Goldman Sachs, however, cautioned that the ongoing geopolitical uncertainties, associated volatility in raw material costs and transition toward electric two-wheelers could impact margin of the industry.
Hero MotoCorp
Initiates coverage with a ‘sell' rating and a price target of Rs 2,080 apiece, indicating a downside of 13.8%.
Hero MotoCorp's high domestic business mix is sensitive to recent price hikes and could take longer to start showing revenue growth compared to peers.
Witnessed lowest Ebitda growth and the highest margin compression among its listed mass market two-wheeler peers (Bajaj Auto and TVS Motor Co. Ltd.)
Missed out on the two key market shifts in the motorcycles segment—exports market development and premium motorcycles growth.
Lost market share in 11 of the past 12 years since split with Honda.
Non-performing assets at Hero FinCorp could weigh on capital allocation flexibility.
Slower to market in the electric scooter space versus Bajaj and TVS, both of which have already launched their electric scooters and have been competing for more than 12 months.
Bajaj Auto
Initiates coverage with a ‘buy' and a price target of Rs 4,270 apiece, indicating an upside of 27%.
Benefit of exports market exposure where emission-related price hikes have been less of a challenge.
CNG network expansion by the Indian government to further support Bajaj's three-wheeler volumes.
Upside optionality from plans to set up captive financing arm.
Expected recovery in domestic three-wheeler market to benefit Bajaj more than peers.
Low exposure to scooters and mopeds which are more at risk from EV-led disruption.
-
Signature Play: The Classic Cocktail Is Dead. Or Is It?
Classic cocktails are disappearing from India's cocktail menus. But they're still being ordered, taught to bartenders and borrowed from. So, who's really having the last drink?
-
A New Samvat Wishlist: Inclusive Prosperity And Human Development
India has strengthened its economic foundations through infrastructure, digital access and enterprise. Its next growth chapter must deepen productivity, create better livelihoods and widen participation in prosperity.
-
Love, Sex Aur Dhokha: The Audacious Plot To Spy On Jensen Huang
A Taipei dinner, a Singapore chip buyer and a suspected Chinese asset: inside the alleged spy operation that got close to NVIDIA's Jensen Huang.
-
Ten Things I Learnt This Samvat
Patience can be a trap. Cheap stocks can stay cheap. Leverage can wipe you out. What did Samvat 2082 teach us? Niraj Shah writes on 10 lessons from the year gone by.
-
Talking Points This Week: Tech Nerves, FII Buying, And A Faraway Banking Shock
The global markets are not shining this Diwali. The exception in the large markets is, India.
-
Midterm Rally Lasted A Day. The Hard Reality Of A Divided US May Last Two Years | Opinion
Between a contested AI boom, a debt ceiling that arrives in 2027 and a president with every incentive to act alone, the next two years may prove more volatile than the first day's rally suggests.
-
Blue Wave Will Derail the AI Trade but Won't Dismantle the AI Era | Unhedged Position
The Democrats' sweep of the US Congress will see politics collide with economic forces both over the long and short term.
-
It's Time To Take The GST Council's Bet On Trust Global
Payment records can prove India's services exports, and clear, proportionate rules can bring foreign digital sellers into the tax net.
-
Opinion | India at 38: From Innovation Overperformer to Innovation Powerhouse
India now has 453 VC-backed deep science startups, 18 of them late-stage, after 117 percent growth since 2020. Laurus Labs, at USD 9.3 billion, is the most valuable deep science company in any middle-income economy outside China.
