Emkay Global Research upgraded TVS Motor Co. and Bajaj Auto Ltd.'s stock ratings, and maintained its rating on Hero MotoCorp Ltd. The brokerage expects improved exports outlook to drive growth in the two-wheeler industry moving forward.
Though growth in India's domestic two-wheeler industry is moderating, export visibility is improving, according to Emkay Global Research. Key markets like Nigeria, which were affected due to currency pressure, are expected to improve this year.
Consistent healthy growth in Latin America, improved retail performance in the middleweight markets for Royal Enfield, and low penetration levels in African markets continue to act as a long-term growth driver for exports, according to Emkay Global Research.
"We build in 16%/17% 2W export CAGR (FY24-27E) for Bajaj Auto and TVS Motor Co, respectively, implying 1%/4% CAGR from peak levels of FY22."
Due to broader weakness in consumer sentiment and cautiousness among retail financiers, growth momentum in the domestic two-wheeler industry is slowing. Growth in the Vahan registration moderated to 8% on the year during September-December in 2024, compared to 12.6% in the preceding three months, Emkay Global Research said.
Emkay Global Research build-in moderate growth for domestic two-wheeler industry for 7%/8% in FY26E/27E, respectively (12% in FY25E). Two-wheelers remain better placed than four-wheelers, which are struggling with growth despite elevated discounts.
Bajaj Auto
Emkay Global Research upgraded the stock rating to 'Add' from 'Sell' and kept the target price unchanged at Rs 9,500 apiece. The target price implied a 7.83% upside from the Tuesday's settling price.
The recent stock-price correction— down 30% from recent peak — captures adequately the weakened position in the domestic two-wheelers and normalised volumes in the three-wheelers. It's also the top electric two-wheeler leader in the December 2024.
Bajaj Auto Ltd. is expected to benefit from exports recovery. Key markets like Nigeria for Bajaj Auto, which was previously affected by currency devaluation and inflation, are stabilising. Improvements in Nigeria is expected to start from calendar year 2025.
Bajaj Auto's exports to Nigeria declined 10% of the peak levels in April 2024 after rising 30% and 50% in first quarter and second quarter end.
TVS Motor
Emkay Global Research upgraded TVS Motor to 'Buy' from 'Add'. It raised the target price to Rs 2,800 from Rs 2,600. The current target price implies an 18.99% upside from the Tuesday's closing price.
The brokerage upgraded the stock rating and raised the target price because TVS Motor's position is improving across categories despite normalised supplies at Honda Motor Co., Emkay Global Research said. The company has also sustained a margin expansion. It's also close to second top player in the two-wheeler industry.
Hero MotoCorp
Emkay Global Research maintained 'Buy' on Hero MotoCorp and cut the target price to Rs 5,600 from Rs 6,200. The current target price implied a 34.61% upside from Tuesday's close.
Emkay Global Research thinks that Hero MotoCorp trades at attractive valuation of 13 times December 2026 estimate core PER with 5% dividend yield after its 33% correction from the recent peak.
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