Two-Wheeler Cos may Race Ahead of Car­mak­ers

The Economic Times - - Companies -

Mum­bai: In­vestors pin­ning hopes on a bet­ter mon­soon to re­vive the ru­ral econ­omy are bet­ting on twowheeler mak­ers over four- wheeler man­u­fac­tur­ers these days. Money man­ager­san­d­an­a­lystssayshare­sof two-wheeler com­pa­nies look poised to out­per­form the auto index as a re­cov­ery in agri­cul­ture — a key driver of the ru­ral econ­omy-- will drive sale­sof two-wheel­er­sand­val­u­a­tions are cheaper.

“Thetwo-wheel­erseg­men­twill­bea nat­u­ral ben­e­fi­ciary of a boost in ru­ral con­sump­tion which makes us ex­tremely pos­i­tive on the seg­ment,” said Vaib­hav Sang­havi, manag­ing di­rec­tor of Am­bit In­vest­ment Ad­vi­sors. “With the gov­ern­ment’s ru­ral push and the pos­si­bil­ity of a good mon­soon, there will be an in­crease in ru­ral spends.

Hero Mo­toCorp is the undis­puted favourite among the an­a­lysts. Other top picks in­clude Ba­jaj Auto and TVS Mo­tors.

“The best play in this space would be Hero Mo­toCorp as it will ben­e­fit the most from any in­crease in ru­ral con­sump­tion,” said Arun Agar­wal, auto and auto an­cil­lary an­a­lyst at Ko­takSe­cu­ri­ties.“As­such,the­w­hole in­dus­try will ben­e­fit as they have a size­able pres­ence in ru­ral In­dia.

Hero has been the best per­former in the au­to­mo­bile sec­tor on the bourses so far in 2016 with the stock gain­ing al­most 10% since Jan­uary. TVS Mo­tors has gained 9.6%, while Ba­jaj Auto has fallen about 5%. In con­trast, Maruti Suzuki, the coun­try’s big­gest car maker, have dropped 25% dur­ing the same pe­riod, while Tata Mo­tors has de­clined 7.7%. Money­man­agerssay­val­u­a­tion­sof two-wheeler stocks are cheaper than that of four-wheeler stocks due to their un­der­per­for mance over the last cou­ple of years.

“At this point, two-wheeler stocks look more at­trac­tive than that of four-wheel­ers,” said Kunj Bansal, ED at C e n t r u m We a l t h Man­age­ment. “De­mand for twowheel­ers has been low for the last two-three years which has cre­ated a base. De­mand will pick up pro­vided the mon­soon is good.” Bansal’s top pick is Ba­jaj Auto.

Hero and Ba­jaj are trad­ing at 1819 times es­ti­mated earn­ings, ac- cord­ing to Bloomberg es­ti­mates. Tata Mo­tor is trad­ing at 37 times. Among car mak­ers, Maruti is trad­ing at 22 times, while Tata Mo­tors is at 11 times.

An­a­lysts feel Eicher Mo­tors is not a good bet at this junc­ture

“EicherMo­torscould­wit­ness­some rub-off; but as its clients are pre­dom­i­nantly ur­ban-cen­tric, it may not see the same up­side as com­pa­nies that are ru­ral-fac­ing,” said Agar­wal.

Yo­gesh Na­gaonkar, a fund man­ager at Bo­nanza Port­fo­lio, said re­gard­less of a ru­ral push or not, a good mon­soon or not, two-wheel­ers are a good op­por­tu­nity.

“Two-wheel­ers have al­ways been at­trac­tive as volatil­ity in vol­umes is much less than in four-wheel­ers and the af­ford­abil­ity fac­tor. One must al­ways pos­sess stocks of the lead­ers in the space like Hero Mo­toCorp or Ba­jaj Auto,” he said. Among four­wheel­ers, val­u­a­tions of Maruti looks good now, he added.

Hero Moto is the favourite among an­a­lysts. Other top picks in­clude Ba­jaj Auto and TVS Mo­tors

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