Home / Markets / Stock Markets /  India 2-wheelers: Still time to buy, says Jefferies, bullish on these 3 auto stocks

2Wheeler stocks have outperformed Nifty by 11-33% since Feb 2022 . However, stocks have still lagged Nifty by 33-77% since Jan 2018 due to demand downturn and EV concern. While the latter concern will continue until clarity on EV market shares emerges, Jefferies believes stocks are attractive for the impending demand recovery.

“The abnormal 35% fall in two-wheeler (2W) volumes over FY19-22 has created a favorable base for double-digit CAGR in coming years. Even if one assumes demand recovers to FY19 level by FY25, 2Ws needs to rise at a strong 16% Cagr next three years. EV adoption is accelerating, but listed incumbents are turning aggressive too," the note stated.

Sharing its top stock picks, Jefferies' top 2-wheeler preferred picks are Eicher Motors with target price of 3,500, TVS Motor with target price of 1,000, followed by Bajaj Auto (TP: 4,500) with Buy ratings. Meanwhile, it has hold tag on Hero Moto shares with target price of 3,000. 

Share of EVs in 2Ws has risen from just 0.4% in FY21 to 3.7% in 1QFY23 and the global brokerage expects electric vehicles (EVs) to form 5%/8%/10% of 2Ws in FY23/FY24/FY25. 

“While new OEMs are ramping-up, listed incumbents are also expanding capacity and portfolio. We expect EV OEMs to gain share in scooters, but expect these gains to largely come at the expense of Honda. TVS has higher exposure to scooters at 26% of its volumes, but also has a strong track record of product launches and market share gains in ICE; we assume 10% market share for TVS in EV scooters vs 21% in ICE scooters," it added.

2W OEMs have demonstrated strong pricing discipline and delivered their best-ever gross-profit-per-vehicle in 2HFY22 despite weak demand and severe commodity cost pressures, as per Jefferies. It expects EBITDA margins of its covered 2W OEMs to expand 2-3ppt YoY over FY22-24 amid improving demand and lower commodity prices.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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