Despite being the worst Nifty performer in 2021, this stock still has some analysts’ backing

NEW DELHI: Hero MotoCorp has been the worst performing stock in Nifty50 this year because of a 22 per cent fall, though it surged 23 per cent on the NSE during the period. Analysts largely have a hold or buy view on the stock, with a median of 44 analysts’ targets suggesting up to 30 per cent potential upside for the stock.

The lowest target for the stock suggests a limited 2 per cent downside from now, suggesting a bottom for the stock might be in place. The upside targets go up to 56 per cent.

Gurmeet Chadha of Complete Circle Consultants said the last two-three years have been very tough for the auto sector because of issues such as BS-VI migration, a rise in insurance rates and a shortage in semiconductor chips. "Look at something like Hero MotoCorp at 14 times earnings next year, has Rs 48,000 crore in market cap and sells about 56 lakh motorcycles and scooters in a year. This compares with some of the startups that hardly sell or have orders, not even sold about a lakh units but are probably valued at $8-9 billion. We should not write-off saying they would not be able to take up the EV challenge," Chadha said.


EV fleets require heavy production of lithium-ion batteries. GM is building a battery plant in Ohio and spending billions overall to transition its fleet away from ICE technology. This shift comes with some challenges, as battery suppliers have traditionally been outside the automotive supply chain, Arihant Capital noted.

Bajaj auto was the first two-wheeler manufacturer in India to launch an EV scooter, Bajaj Chetak, in January 2020 and Hero Motocorp is all set to venture into the EV space with the launch of its first electric vehicle by March 2022.

This brokerage said that inquiry levels in the domestic market were gradually improving and that it expected a two-wheeler recovery from the March quarter. "The export segment sales continued to show strong momentum. We expect OEMs with higher export exposure to perform relatively better, like Hero MotoCorp and Bajaj Auto," Arihant Capital said.

Sharekhan said electrification in the two-wheeler markets was making in-roads, showing visible signs of early adoption, and the two-wheeler industry was moving towards a 50-player industry from the current 8-10 key players in the sector. "We expect excitement in the e-2W space with new and innovative launches. Players like Hero MotoCorp and Bajaj Auto are unlikely to be impacted in the initial years due to lower exposure to scooters. Also, the large OEMs have already announced their plans briefly and are ready to scale up EV operation, as and when the industry witnesses demand and adequate charging infrastructure. The lower sales in two-wheeler segments have resulted in 10-30 per cent stock price correction over the last 6 months. The valuations are attractive and below historical average multiples for two-wheeler players," it said.

Sharekhan has a target of Rs 4,030 on Hero MotoCorp; Emkay Global at Rs 3,700; Motilal at Rs 3,100; Kotak at Rs 2,800. The stock was trading at Rs 2,470 at 1:20 pm on Friday.

"We expect Hero MotoCorp and Bajaj auto to perform well, supported by reasonable valuations and good to mid-teen growth prospects. Key things to support the demand going forward would be an Increase in preference for personal mobility, better cash flow management by households aided by low cost of vehicle financing, macro support; and reduced lifespan of a vehicle leading to faster replacement," it said.

Hero MotoCorp is expected to continue its dominancy in the economy and executive motorcycle segment, which contribute the bulk of the motorcycle market size, Sharekhan said, adding that Hero has an extensive distribution and dealer network in the country and a strong presence in tier-II and tier-III cities and rural areas. These geographies can give a large part of incremental demand for two-wheelers, the brokerage said.

It noted that Hero MotoCorp holds 34.6 per cent stake in Ather Energy and was working on a mass e-2W model, slated to be launched next year.

Anshul Saigal of Kotak Mahindra AMC, however, in a recent interview to ET NOW, said he would not look at valuations and go out and buy into the space. "We would need a more concrete strategy to come out as regards the electric vehicles from the incumbents for us to take a call on the direction that this space will take for the incumbents. And so for that reason, valuations are not something that will attract us quite substantially at this time."