CLSA turns cautious on 2-wheeler stocks; Should you too?

Stock market today: Margins in electric 2Ws are likely to remain challenging in the near term, said the brokerage.

The brokerage has turned cautious as valuations are pricing in double-digit growth in volumes over the next few years already.

Stock market today: Given the meteoric rise in two-wheeler stocks in recent months, the global brokerage firm CLSA has turned cautious on the segment and has downgraded the two-wheeler industry as a whole.

The global brokerage is of the view that stocks are currently fairly valued after the sharp rally in stock prices. The brokerage attributed the recent run-up in the stocks to the increase in volume owing to the festivities. "We believe the upside in the stocks has reduced due to the recent rally in stock prices, hence the downgrade," the brokerage added.

Among individual names, Hero MotoCorp has zoomed up to 23 per cent, TVS Motor gained 19 per cent, Eicher Motors rallied 21 per cent and Bajaj Auto has gained over 14 per cent in a month.

In the early morning trade on Wednesday (December 6), some of the counters from the basket, including the likes of Bajaj Auto, fell up to 2 per cent and hit the day's low of Rs 6,018 as against Rs 6,139 per share in the previous day's trade.

The brokerage has turned cautious as it believes that the companies' valuations are pricing in double-digit growth in volumes over the next few years already. Margins in electric 2Ws are likely to remain challenging in the near term, said the brokerage.

For Bajaj Auto, CLSA has double downgraded the counter to 'Underperform' from 'Outperform', while raising the target to Rs 6,832 from Rs 5,670. InCred Equities, on the other hand, has maintained an 'Add' rating on the counter. Earlier, KR Choksey, in its report dated December 5, maintained a 'Buy' rating on the counter.

The brokerage on the counter said, "We assign a P/E multiple of 21.0x on FY26E EPS of INR 337.8 and arrive at a target price of INR 7,093/share (INR 5,830/share previously); implying an upside potential of 15.6% from the CMP. Accordingly, we upgrade our recommendation to “BUY” from “ACCUMULATE".

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Furthermore, Eicher Motors has also been downgraded by CLSA to 'Underperform' from the earlier 'Buy' call with a new slashed target of Rs 4,129 from the earlier Rs 4,252.

Also, a downgrade has been exercised for Hero MotoCorp from 'Buy' to 'Outperform' with a revised target of Rs 4,127 from Rs 3,701 per share.

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