Eicher Motors vs Bajaj Auto: Which is a better long-term investment? 6 experts answer

The auto sector rose over 15 percent in 2022 on the back of a recovery in demand post the pandemic and as the chip shortage issue eased in the semiconductor industry. the two-wheelers witnessed a strong recovery on the back of festive sales and a rise in consumer demand. Further, the demand for premium two-wheelers remains stable, while export sales are subdued. Also, the rural mood is improving due to better harvesting and export, which is a positive for the 2-wheeler space.

With major 2-wheeler firms competing with new launches and festive discounts, let's find out between the 2 major 2-wheeler firms Eicher Motors and Bajaj Auto, which is a better long-term investment.

Stock price trend

In the last 1 year, while Eicher Motors has risen 16 percent, its peer Bajaj Auto has only added 4 percent.

The last few months have been in the red for both stocks. Bajaj Auto has lost over 1 percent in January till date after a 3.5 percent fall in December. However, it was positive in November and October 2022, up 2 percent and 4 percent, respectively.

On the other hand, Eicher has been giving negative returns for 3 straight months. It has lost nearly 2 percent in January till date after a 7 percent and 9.5 percent fall in December and November 2022, respectively. However, before November, the stock gave positive returns for 7 straight months from April to October.

Both stocks hit their respective 52-week highs in the second half of 2022. From its 52-week high of ₹4,130, hit in September 2022, Bajaj Auto has fallen a little over 13 percent. Meanwhile, Eicher Motors has lost 18.5 percent from its 52-week high of ₹3,886, hit in November 2022.

About the firms

Eicher Motors is engaged in the manufacturing of motorcycles and commercial vehicles. Its motorcycle business is led by the brand, Royal Enfield, which is a motorcycle brand. Its commercial vehicle business is led by VE Commercial Vehicles. Its joint venture with AB Volvo, VE Commercial Vehicles Limited (VECV), includes a range of Eicher branded trucks and buses.

According to brokerage house Axis Securities, Eicher Motors’ total domestic 2W sales grew by 50 percent in YTD – FY23 from April to Dec 2022, and its market share increased to 4.4 percent from 3.5 percent YoY over the same period. The sales volume increase is aided by the launch of the Hunter-350, which received good reception. Eicher Motors have also launched Super Meteor 650 recently, starting at Rs. 3.49 Lakh, which could add to the sales price realizations, it added.

Bajaj Auto is a manufacturer of motorcycles, and three and four-wheeler vehicles. The Company is engaged in the business of development, manufacturing, and distribution of automobiles such as motorcycles, commercial vehicles, electric two-wheelers, and parts. The Company's business segments include Automotive, Investments and Others. Its motorcycles include Boxer, CT, Platina, Discover, Pulsar, Avenger, KTM, Dominar, Husqvarna, and Chetak.

Bajaj Auto has gained market share in the 125cc segment, rising from 2 percent in Q1FY20 to 24 percent in Q2FY23. 60 percent of its portfolio, as of Q2FY23, is in the 125cc+ segment, compared to 46 percent in FY20, primarily driving its improved profitability and superior competitive position. Its position in the 3W segment is also robust as the 3W domestic wholesale volumes in Q2FY23 were at 54 percent of the pre-Covid levels (retails were at 65 percent). With this, its market share currently stands at an all-time high of 72 percent, as it capitalized on the continuous rollout of the CNG network by the government, noted Axis.

Earnings

In the September quarter, Bajaj Auto reported a 20 percent year-on-year (YoY) rise in standalone profit after tax (PAT) at ₹1,530 crore compared with ₹1,275 crore in the same quarter last year. Revenue from operations rose 16 percent YoY to ₹10,203 crore compared with ₹8,762 crore in the corresponding quarter last year. Ebitda jumped 26 percent YoY to ₹1,759 crore from ₹1,401 crore in the year-ago quarter. 

On the other hand, Eicher reported a 76 percent rise in consolidated net profit to ₹656.86 crore in Q2FY23 versus ₹373.20 crore in the year-ago period. Its consolidated revenue from operations of Eicher Motors grew by 55.8 percent to ₹3,453.43 crore in the quarter under review from ₹2,216.40 crore a year ago. Its Ebitda increased 75 percent YoY to ₹821 crore.

Which is a better stock, let's find out

1) Saji John, Research analyst at Geojit Financial Services has picked Eicher over Bajaj.

John believes Eicher Motors is likely to fare well in the long term as the company has diversified its presence across the international region.

"Share of the revenue from the international market has grown 5x over the last 7 years from 3.1 percent to 16.8 percent with 800+ global touch points in FY22. While Bajaj, whose exports are largely concentrated in the African region, is at risk of home currency devaluation. As a result, for the last nine months of FY23, Bajaj's volume has declined by –8 percent while Eicher’s grew by 44 percent. Rising income levels, aspiration-driven youth, and an underserved niche with less competition place Eicher in a better long-term position than Bajaj. Furthermore, a segmental advantage in commercial vehicles and positive sector outlook beautifies the pick," explained the expert.

2) Aniket Mhatre, Institutional Research Analyst, HDFC Securities also prefers Eicher between the two.

Mhatre said that he prefers Eicher Motors as its a play on the premiumisation trend in India and is also a strong export growth story in the long run. He further added that the VE (Volvo-Eicher) Commercial Vehicles segment is also doing better than itspeers in most of its key segments.

3) Vinit Bolinjkar - Head of Research - Ventura Securities is also in favour of Eicher over Bajaj.

According to Bolinjkar, the domestic 2W demand for the 100-180cc segment has failed to revive in Q3FY23 due to EV disruption. This segment constitutes over 90 percent of Bajaj Auto’s domestic volume. Due to the ongoing slowdown in the segment, Bajaj Auto reported a 26.7 percent YoY decline in its domestic 2W volumes. During Apr-Dec 2022, Bajaj’s domestic 2W volumes grew only by 6.8% YoY, despite a low base of last year, he noted.

Furthermore, he added that the weak global economic environment has also dampened Bajaj Auto’s export volumes during Q3FY23. The company witnessed a YoY 2W volume decline of 20.8 percent during Apr-Dec 2022. In its 3W segment as well, Bajaj Auto witnessed a YoY volume decline of 0.9 percent during Apr-Dec 2022, despite a lull period of FY21 and FY22, informed the expert.

However, unlike Bajaj Auto, Eicher Motors reported 38.8 percent YoY growth in its domestic 2W volumes in Q3FY23. Apr-Dec 2022 domestic and export volumes grew at a YoY rate of 52.5 percent and 21.1 percent respectively, he pointed out. New launches and product enhancement through technical tie-ups have improved the product profile of Eicher Motors which has increased the demand for its motorcycles, added Bolinjkar.

In addition, Eicher Motors has VE Commercial Vehicles, which has witnessed a strong rebound of 44 percent YoY growth in its sales volume during Apr-Dec 2022 due to an increase in demand for trucks from the infrastructure and construction segment, he highlighted.

4) Nirvi Ashar - Fundamental Analyst, Religare Broking said, "amongst Eicher Motor and Bajaj Auto we would prefer investment in Eicher Motors given the strong volume growth, new launches across segments and premiumization. Further, Its Royal Enfield segment continues to do well and is gaining good traction both in domestic and international markets led by premiumization and new launches."

Besides, a pick up in infrastructure and industrial activity will bode well and boost sales for its commercial vehicle segment. Financially, Ashar expects the company’s revenue/PAT to grow in the range of 15-20 percent over FY22-25E and have strong ROE and ROCE of 15 percent/18 percent, respectively.

5) Aditya Welekar, Senior Research Analyst - Metals, Mining, and Auto, Axis Securities also prefers Eicher motor over the 1-year horizon as its premium motorcycles fit well in the premiumization story of the 2Ws. Also, its VECV arm will continue to do well, as it is expected that CV cycle will do well in FY24, he said.

"We like Bajaj auto also. However, with exports forming 50 percent of total vehicle sales for Bajaj, we prefer Eicher over Bajaj as it is expected that export markets will witness some pressure for a couple of quarters. The Macroeconomic headwinds primarily related to cost inflation and USD availability drive our more guarded view on Bajaj," he rationaled.

6) Finally, Anil Rego- Founder and Fund Manager at Right Horizons PMS also said that he is bullish on Eicher Motors over Bajaj Auto in the medium term since exports contribute a higher percentage of revenue in comparison and exports remain subdued across the segments and continue to face challenges due to an economic slowdown and supply constraints in some regions.

"We prefer Eicher Motor led by successful new launches, positive sentiments in rural and semi-urban areas, and comfortable valuations," he added.