Hero Moto shares get a double upgrade to a 'buy' rating, check target price

Hero Moto shares have been upgraded to a 'buy' rating by BoFA Securities, a New York-based broking firm that was previously called Bank of America-Merrill Lynch. The latest rating on the stock is two notches higher than the previous rating 'underperform'.

The target price on the stock is ₹4,350, which is 16% more than Thursday's closing price. The New Delhi-based two-wheeler maker, one of the largest in the world, has seen a 40% rally in the share price compared to a 70% rally in peer Bajaj Auto.

Three reasons cited  for the latest upgrade for Hero Moto:

1. The demand for two-wheelers is finally gaining ground.

2. There's a renewed vigour and focus on growth under the new chief executive officer (CEO) Niranjan Gupta

3. The stock is attractively valued with a favourable risk-to-reward ratio.

The analysts at BofA Securities see an opportunity in Hero Moto at a time when, as they put it, "investor positioning in the stock is low (FII ownership multi-year low) and the company has suffered from a legacy perception of being slow or lagging competition." FII is the abbreviation for foreign institutional investors.

Hero MotoCorp sold more than 1.4 million vehicles in the 32-day festive period from Navratri to Bhai Dooj, a 19% growth compared to the festive season a year earlier. "We plan to take the production of premium motorcycles, including Karizma, X440 and the new Hero 440cc bike to 10,000 a month by March," Gupta, CEO of Hero MotoCorp, said in an exclusive interview to CNBC-TV18 on November 24.

"This top-down push is well echoed in our dealer conversations, who are also investing in upgrading the front-end distribution to help premiumise the brand and customer experience," the BofA Securities note dated November 30 said.