Hero MotoCorp vs Bajaj Auto: Which two-wheeler auto stock to buy after Q2 results?

Hero MotoCorp share price jumped over 5% on Monday after the two-wheeler major reported Q2 results that were largely in-line with Street estimates. Hero MotoCorp shares gained as much as 5.12% to ₹4,840.40 apiece on the BSE.

Hero MotoCorp, the world’s largest two-wheeler manufacturer, reported a 14% year-on-year (YoY) rise in its net profit for the quarter ended September 2024 at ₹1,204 crore. The company’s revenue in Q2FY25 grew 11% YoY to ₹10,463 crore. At the operating level, EBITDA increased 14% YoY to ₹1,147 crore.

The company sold 15.20 lakh units of motorcycles and scooters in the July-September 2024 quarter, registering a growth of 7.3% from 14.16 lakh units sold in the same period last year.

Analysts Review

Brokerage firm Motilal Oswal Financial Services (MOFSL) expects Hero MotoCorp to deliver a volume CAGR of 7.5% over FY25-27E, driven by new launches in the 125cc, scooters, and premium segments and a ramp-up in exports.

“Hero MotoCorp will also benefit from a gradual rural recovery, given strong brand equity in the economy and executive segments. We expect a CAGR of ~9.5% / 9% / 11% in revenue / EBITDA / PAT over FY25-27. We cut our FY25 EPS estimates by 1% but a much higher 11% for FY26 as we lower our volume growth expectation and also moderate our other income estimates. Post the recent correction, Hero MotoCorp stock is attractively valued at ~20x/18.5x FY25E/FY26E EPS,” MOFSL said.

The brokerage firm reiterated its ‘Buy’ rating on Hero MotoCorp shares with a reduced target price of ₹5,420 apiece.

Nuvama Institutional Equities also believes Hero MotoCorp is well-placed to benefit from the two-wheeler industry upcycle in rural and urban areas with strong brands, recent launches such as Xtreme 125R, and upcoming variants such as Vida Z EV in 2.2-4.4KWH range, Xpluse 210, Xtreme 250R, Karizma XMR 250 and Xoom 125/160.

“Hero MotoCorp is a key beneficiary of the likely uptick in rural demand owing to its wide network. We forecast revenue/core earnings CAGR of 8%/10% over FY24–27E with healthy FCF (~ ₹37 billion/year) and dividend yield (~4%),” Nuvama Equities said.

It maintained a ‘Buy’ call and Hero MotoCorp share price target of ₹6,200 apiece.

On the other hand, Hero Moto Corp’s rival Bajaj Auto had last month reported a standalone net profit growth of 9.2% YoY at ₹2,005.04 crore for Q2FY25. The auto major’s total revenue from operations in Q2FY25 increased by 22% to ₹13,127.47 crore.

Comparing Hero MotoCorp with Bajaj Auto, here’s a look at what analysts prefer:

Hero MotoCorp vs Bajaj Auto: Which auto stock to buy?

Analysts favor Hero MotoCorp shares over Bajaj Auto, citing the company's potential to capitalize on a recovery in rural demand. They anticipate robust volume growth in the near term, driven by increased demand for Hero MotoCorp's new product launches.

“Hero MotoCorp is likely to manage a good growth due to enhancement in the rural markets on account of a normal monsoon, rural demand recovery and increased base-level bike purchases from consumers. The company’s expansion plans, which also include revamping showrooms and adding new models to existing lineups, are expected to drive faster volume growth than the overall industry. But at the same time of these events, Bajaj Auto experienced seasonal sales to be more or less flat,” said Jathin Kaithavalappil, Assistant Vice President at Choice Broking.

In view of these factors, it may be wiser to invest in Hero MotoCorp than in Bajaj Auto, he added.

Sagar Shetty, Research Analyst, StoxBox highlighted that both the two-wheeler OEMs reported healthy finances during the quarter, with robust growth on all fronts.

“Considering the current demand scenario, with a healthy recovery in rural demand while urban demand remains under pressure, we believe Hero MotoCorp is better positioned to benefit. With its strong rural play, we believe the company is poised to witness healthy demand in the coming period, with the onset of the marriage season, auspicious days and the healthy momentum it had gained during the festive season,” Shetty said.

According to him, Hero MotoCorp is at an inflection point, backed by strong fundamentals, a revitalized product portfolio, and favorable macros. Its leadership position, robust financial metrics, and strategic focus on premium and EV segments make it a standout in the auto sector.

“Additionally, at the current CMP, Hero MotoCorp shares offer a compelling investment case with high ROIC (60%), strong cash flow, and attractive dividend yield (3.8%),” Shetty said.

On Monday, Hero MotoCorp shares ended 2.75% higher at ₹4,730.70 apiece, while Bajaj Auto stock price closed 0.27% higher at ₹9,515.25 apiece on the BSE.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.