The stock of Hero Moto, the country’s largest motorbike maker, trades at a one-year forward price-earnings multiple of 18.7, a 3% premium to Bajaj Auto, according to the data from Bloomberg. In contrast, Hero Moto traded at nearly 3% discount over the past decade to Bajaj Auto and the discount had widened in the previous five years given the latter’s rising export volume, which had partially offset the impact of slowing sales in the Indian market.
The surge in the ‘need’ based buying for personal transport amid the pandemic spread is turning out to be a boon for Hero Moto, which has 62.4% and 71% market share in the economy and executive segments. In addition, it derives more than half of the sales volume from the rural market, which is outperforming due to better cash flow in the hands of potential buyers. The company has 48-55% market share in states such as UP, Bihar, Rajasthan and Madhya Pradesh, which have a higher dependence on agrarian economy.
Analysts expect 10-12% decline in the company’s volume for FY21. However, if it is able to sustain the momentum seen in July when the volume soared by 14% year-on-year, the company may beat the market expectations. In the case of Bajaj Auto, the three-wheeler sales, which had supported the margin in the previous years, are on a decline since lenders are reluctant to finance new vehicles in the current economic scenario. This would affect the company’s performance for FY21. Its three-wheeler volume dropped by 90% year-on-year to 11,784 units in the first four months of FY21.
Hero Moto’s stock has gained 65% since the March 23 low, the highest among the two-wheeler makers. The company is expected to sustain the momentum in the coming quarters given the rural push and a strong market presence.
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1 Comment on this Story
Leon Fernandes170 days ago
may the best win.