JPMorgan's top stock picks as it initiates coverage of Indian 2Wheelers
JPMorgan likes TVS (its top pick) and Bajaj Auto within Indian 2Ws due to their revenue diversification as well as presence (albeit small) in the EV segment
JPMorgan has initiated coverage of Indian two-wheelers (2W) with a cautious stance as it expects a cyclical recovery in volumes but a substantial part could be captured by electric vehicles (EV). Electrification should accelerate aided by generous subsidies as well as aggressive capacity additions.
“2W ICE OEMs (original equipment manufacturers) have been able to offset commodity inflation through regular price hikes but volume growth has suffered. We expect profitability to gradually improve but the pace of price hikes may not be sustained if EV share increases rapidly. Our EPS forecasts are 1-20% below consensus," JPM said in a note.
TVS is its preferred stock pick within Indian 2Wheelers. TVS has consistently improved its market-share/margins. Whereas, Bajaj Auto has the most diversified revenue base.
“We like TVS (top pick) and BJAUT within Indian 2Ws due to their revenue diversification as well as presence (albeit small) in the EV segment. We are negative on EIM as the company no longer outperforms its peers but continues to trade at a significant premium," it added.
It has initiated coverage on TVS Motor with Overweight rating and price target of ₹725 whereas its Bajaj Auto's overweight rating comes with a price target of ₹4,500 per share.
Hero MotoCorp (HMCL) is almost entirely dependent on domestic 2Ws (95%). It has an indirect EV presence through Ather (35% stake) and will be launching its own EV by Mar-22. Eicher Motors' (EIM) volumes and profitability have been less resilient than those of its mass-market peers, it added.
JPM has Neutral rating with Hero Moto and has price target of ₹3,110. It has initiated coverage on Eicher Motors with Underweight rating and price target of ₹2,350.
“We will watch for monthly EV volumes, EV model launch/capacity announcements, and quarterly margin trends for ICE OEMs," JPMorgan said.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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