Bajaj Auto vs Hero MotoCorp vs Eicher Motors: Which auto stock to choose for long term?

Stock market trends and earnings suggest that the auto sector has started recovering and has reached a transformative stage. Headwinds like demand weakness, rising raw material costs, and chip shortages have become a thing of the past. The Nifty Auto index hit its new high in the previous session, July 13, on the back of overall positive market sentiment. Meanwhile, a strong growth outlook, rising demand, new launches, and decent sales have kept the investor sentiment positive on the space.

Amid this backdrop, let's analyse, between Bajaj Auto, Hero MotoCorp and Eicher Motors, which auto major has better long-term growth opportunities?

Stock Price Trend

Bajaj Auto has been the better performer between the three in the last 1 year. It has jumped 26 percent in the last 1 year while Hero and Eicher have added around 10 percent each. In comparison, The Nifty Auto index has surged 28 percent.

A similar trend was seen in 2023 YTD as well. Bajaj Auto has outperformed the other 2 this year so far. It has advanced 35 percent in 2023 YTD as against a 12 percent rise in Hero and a 1 percent gain in Eicher. Meanwhile, Nifty Auto has jumped 23 percent in this time.

Bajaj Auto has given negative returns in just one (Feb, down 4 percent) of the 7 months in this calendar year so far. It has risen 3.7 percent in July so far, extending gains for 5th straight month.

Hero, on the other hand, has given negative returns in 2 (Feb and March) of the 7 months in 2023 so far. It has jumped 5.6 percent in July so far, extending gains for the 4th straight month.

Finally, Eicher has given negative returns in 4 of the 7 months this year so far. It has fallen 9 percent in July so far, extending losses for the 2nd straight month.

Meanwhile, in the long term (3 years), Eicher has rallied the most, 73 percent, followed by Bajaj, which surged 68 percent and finally Hero, which added 18 percent.

Auto Sales Data

In June, Bajaj Auto reported a 2 percent on-year fall in its total sales volume, largely dragged by lower exports. The company sold a total of 3,40,981 vehicles in June this year as compared to 3,47,004 units sold in the same month last year.

Meanwhile, Hero Moto reported total sales at 4,36,993 units in June 2023, down 9.9 percent as compared to 4,84,867 units sold in the same month last year. In terms of Month-on-Month sales, Hero MotoCorp registered a decline of 15.88 percent. It had sold 5,19,474 units in May 2023.

Finally, the total sales of Eicher in June rose 6.5 percent at 6,715 units from 6,307 vehicles in the year-ago period. Its domestic sales also advanced 12.4 percent at 6,277 units from 5,584 vehicles but exports were down 58.4 percent at 250 units against 601 units in the year-ago period.

Which auto stock has better long-term investment opportunities?

Aditya Welekar, Senior Research Analyst, Axis Securities, has picked Bajaj Auto as its top pick. He prefers Bajaj Auto, followed by Eicher and then Hero MotoCorp in the long term.

The recent launches by Bajaj and Hero in the premium space have increased the competitive intensity in the segment. The >250cc motorcycle segment domestic sales stood at 794k units in FY23, up from 577k units in FY22. Royal Enfield (Eicher) forms >90 percent market share in this segment. Bajaj's Triumph Speed 400 and Hero MotoCorp's Harley-Davidson X440 launch offer credible competition to RE's dominance in the premium motorcycle space mainly because of the value proposition offered by these two models, the attractive price point, more power/torque and other features.

Bajaj has a solid domestic portfolio and exports tailwind in future quarters, plus the Triumph launch. Its 3W CV segment is doing well.

Eicher has new launches lined up, with the new Royal Enfield 450cc and Himalayan in the next few months. With these new launches, Eicher will try to consolidate its position in the >250cc space. Also, it can potentially grow in the export market in the mid-size motorcycle space. Hero MotoCorp has a tailwind ahead if the rural economy picks up, plus with the change in the management, the company has increased its focus on improving its market share in the 125cc segment. Its Harley-Davidson X440 launch and its focus on accelerating its EV (Vida) outreach must be monitored.

Parul Sharma, Research Analyst, SAMCO Securities, has also chosen Bajaj Auto among peers.

Bajaj Auto seems to be hitting all the right nerves with its business. The auto major has a well-diversified portfolio, providing it a cushion against any segment’s downfall. As the worst seems to be behind for the exports, the recovery in the key markets will move the needle on the growth. Furthermore, the collaboration with Triumph offers enormous opportunities in the premium segment and would be an additional kicker for margins. Bajaj Auto is also increasing its presence in the EV space by ramping up the production for Chetak. All in all, the company is in an adrenaline rush for the next leg of growth and this makes the stock a favourable investment in the long term.

Meanwhile, Nirav Karkera, Head of Research at Fisdom, as well, prefers Bajaj Auto between the three.

Bajaj Auto achieved a significant QoQ volume growth of 20 percent, while Eicher Motors and Hero MotoCorp achieved growth rates of 5 percent and 6.5 percent, respectively. Although there were challenges in export performance due to the global economic slowdown and geopolitical issues, all three companies showcased robust domestic demand.

Looking beyond these temporary concerns, we anticipate these companies will benefit from cost moderation in raw materials, improved operating leverage, and price hikes in the long run. However, the recent entry of Bajaj Auto in partnership with Triumph and Hero MotoCorp in partnership with Harley-Davidson into the premium two-wheeler market may pose short-term implications for Eicher Motors. Bajaj Auto and Hero MotoCorp's pricing strategies could pressure Eicher Motors' margins. It is essential to consider that if the existing prices of Bajaj Auto and Hero MotoCorp are not adjusted in the near term, they may impact Eicher Motors' earnings.

Ashwin Patil, senior research analyst at LKP Securities, also like Bajaj Auto better than Hero and Eicher

This fiscal the two-wheeler sector should perform better than last year. The base of last year is low, secondly, sentimentally things have improved a lot as well. Considering scooterisation and premiumisation of bikes in the urban markets and the slight pick-up seen in the rural markets, we guess the two-wheeler industry should grow well, at least 10 percent this year. Among the companies, we are more positive on Bajaj Auto assuming that exports have bottomed out and we may see growth coming there at a good pace soon. New vehicle launches domestically and a 3W monopoly and entry into the ultra-premium segment through a tie-up with Triumph and the Chetak EV scooter provides the extra edge. Therefore Bajaj remains our top pick.

Meanwhile, Vinit Bolinjkar, Head of Research, Ventura Securities, likes both Eicher and Bajaj.

We recommend investing in Eicher Motors and Bajaj Auto, owing to their robust product portfolios and expanding presence in the premium motorcycle segments, in contrast to Hero MotoCorp, which predominantly derives over 80 percent of its sales volumes from the entry-level to mid-segment 2Ws. This strategic shift has not only resulted in improved operating profitability but also facilitated a re-rating of their valuation.

Bajaj Auto, with its notable brands such as KTM, Husqvarna, and its recent JV with Triumph, has significantly strengthened its foothold in the premium motorcycle segment. Similarly, Eicher Motors, through its iconic Royal Enfield series, has made substantial advancements in its product portfolio, spanning from 350cc to 650cc motorcycles. Furthermore, Eicher Motors has been exploring business opportunities in the export market and has emerged as a prominent global player in the 350-650 cc segment. In addition, Eicher’s VECV JV has enhanced its presence in the CV industry and has significantly improved its market share in the bus and 16+ ton truck segments.

Conversely, although Hero Motocorp has introduced several high-end motorcycles, including the recent launch of X440 in collaboration with Harley Davidson, its sales volume in the premium segment is yet to gain significant traction.

Considering the aforementioned factors, we believe that investing in Eicher Motors and Bajaj Auto presents a compelling opportunity due to their strong market positioning, focused expansion into premium segments, and their active pursuit of innovative technologies.

Giving a different opinion, Akshay Tiwari - Fundamental Analyst, Religare Broking, has picked Eicher Motors.

Amongst these three stocks, our preference is more towards Eicher Motors in the long term followed by Bajaj Auto and Hero MotoCorp as Eicher has seen strong revenue growth, attractive margins, and better long-term growth prospects as compared to other players.

If we compare the data for the last 5 years, Eicher has showcased the best growth as its revenue has grown at a CAGR of 10 percent over FY18-23. Bajaj Auto's revenue grew by 7.6 percent during the same period while Hero MotoCorp's revenue has grown merely at a CAGR of 1%. Besides, Eicher's RE targets the premium market which attracts higher margins and profitability while Bajaj Auto has a healthy mix of products that caters to different price points and it is also India's leading exporter of 2-wheelers which gives it a competitive edge over its peers. In terms of EBITDA margins, Eicher has one of the highest margins in the industry at 23.8 percent followed by Bajaj Auto at 18 percent while for Hero MotoCorp despite being one of the largest producers of 2-wheelers in India, its margins have remained in the range of 12-13 percent.

For the short term, we may see Eicher under pressure as the recent news of the collaboration of Harley Davidson and Triumph Motorcycles with Hero MotoCorp and Bajaj Auto, respectively, may impact sentiments. However, from a long-term perspective, we remain bullish as RE being its homegrown product gives it an edge over the new entrants in terms of margins, and due to its strong brand recall value, the demand outlook for the company looks positive while strategic expansion in international markets would further aid in the growth of the company.