Large-Cap Auto Stock Races 6% As Brokerage Upgrades Rating To 'Buy'

Shares of Eicher Motors were racing at the bourses on Wednesday morning surging up 6% to hit an intraday high of ₹3,940.

What Happened: The massive surge today comes as UBS upgraded the stock’s rating from a “neutral” to a “buy”. The brokerage also revised its price target on the stock upward to ₹5,000 from ₹4,300 previously. The revised target indicates a potential upside of 34% from the stock’s last closing price of ₹3,716.85.

The decision to upgrade Eicher Motors stems from UBS’s perception of the company’s risk-reward profile as “compelling,” particularly due to Royal Enfield’s resilience against electrification risks in the automotive industry. The analysts also added that the recent launches in the same category from competitors have not been able to ramp up volumes meaningfully.

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UBS anticipates that Eicher Motors’ Royal Enfield segment will witness domestic volume growth at a compound annual growth rate (CAGR) of 10% between financial years 2024 and 2026. This growth projection surpasses the industry average growth rate of 6% to 7%.

The analysts also highlighted that Eicher Motors’ shares are currently trading at a 20% discount compared to Bajaj Auto‘s one-year forward price-to-earnings multiple, in contrast to a 50% premium observed over the past five years. As of now, Eicher Motors commands a one-year forward price-to-earnings multiple of 23.11 times, while Bajaj Auto stands at 28.64 times.

Price Action: Eicher Motors’ share price was up 3.70% to trade at ₹3,854.35 in the early hours of trading on Wednesday.

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