UBS upgraded Eicher Motors Ltd. to a 'buy' from 'neutral', as it expects the launch of its 450cc platform to address competition and growth concerns.
The brokerage also raised its target price from Rs 4,300 apiece to Rs 5,000 apiece.
Shares of Eicher Motors hit an intraday high of 6% and were trading 4.62% higher at 10:28 a.m. at Rs 3,885 per share, compared to a 0.4% decline in the NSE Nifty 50.
Key Levels to Watch
Key support: Rs 3,672 apiece (two-day low).
Resistance level: Rs 4,019 apiece (three-week high).
Competitive Intensity
With the recent launches by Harley Davidson, brought to India by Hero Motocorp Ltd., and Triumph by Bajaj Auto Ltd. in the 400cc space, Eicher's stock is trading at a 20% discount compared to peers. But despite these launches, Royal Enfield's market share has not seen significant setbacks, UBS said.
Existing competition from Honda and Classic Legends continue to struggle in terms of volume, despite new launches, it said.
The market is missing continued strength in Royal Enfield's addressable market, along with its strong customer connect, according to the brokerage.
Business Outlook
Through its brand Royal Enfield, Eicher Motors operates in three engine segments—350cc, 450cc and 650cc. With new launches targeting the 350cc segment, the market has not shown confidence in RE to defend its territory.
The company has an aggressive product launch pipeline, with intentions to double current products over the next two years. While 450cc may cannibalise the existing portfolio, it will attract newer customers to their fray, according to UBS. The current trend of buyers upgrading from smaller motorcycles to Royal Enfield will continue, with roughly 85% of RE's customers being replacement buyers, the brokerage estimated.
Street View
Of the 41 analysts tracking the company, 19 maintain a 'buy' rating, 11 suggest a 'hold' and 11 recommend a 'sell', according to Bloomberg data.
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