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From Bajaj to TVS, two-wheeler makers hit full throttle on growth prospects

By Ram Prasad Sahu
Last updated on: December 04, 2023 21:30 IST
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With sentiment for the automotive (auto) sector turning positive, stocks of two-wheeler auto majors have been hitting their 52-week highs.


Photograph: Rupak De Chowdhury/Reuters

Hero MotoCorp, Bajaj Auto, TVS Motor Company, and Eicher Motors recently reached their yearly highs on strong sales in the festival season and the expectation of faster growth rates ahead.

Since the start of this month, listed two-wheeler majors have delivered returns in the 12–17 per cent range, compared to the 7 per cent gains for the S&P BSE Auto Index and 3 per cent for the benchmark S&P BSE Sensex.


Commenting on two-wheeler deliveries in October to dealers ahead of the critical festival season, Sharekhan Research says that the segment surpassed its expectations, as its two-wheeler universe reported an 11.9 per cent month-on-month increase in volumes against the expectation of a 7.2 per cent increase.

While demand woes continued to plague the export market, growth was largely on the back of domestic demand.

Bajaj Auto led on the growth front with a 24.5 per cent year-on-year (Y-o-Y) jump, while Hero MotoCorp reported 7.2 per cent growth.

TVS Motor and Eicher reported an uptick of 8.7 per cent and 7.5 per cent, respectively.

In the export segment, most players, except for Bajaj Auto, which was marginally higher, reported a fall on a sequential basis, indicating a weak demand environment.

On a Y-o-Y basis, Bajaj Auto reported a 7 per cent fall, while Eicher reported a 39 per cent fall for this period.

Automakers and dealers are indicating double-digit growth during the ongoing festival season and observing an improvement in demand for entry-level products as well.

While festival demand typically boosts rural and entry-level sales, whether it sustains will be critical. Currently, most players are leveraging the premiumisation trend in the domestic market and enhancing their product portfolio according to customer preferences, the brokerage added.

While two-wheelers have lagged behind other auto segments, some brokerages have started to turn positive on them.

Analysts at Motilal Oswal Research, led by Jinesh Gandhi, say, “Compared to other categories, two-wheelers demonstrate a more promising growth potential over 2022–23 (FY23) through estimated 2025–26 (FY26) due to the positive shift in demand and their slower recovery, resulting in a lower starting point for growth. This should be followed by a gradual but orderly rebound in the export market.”

The brokerage anticipates 9–11 per cent annual growth over FY23–26 for the segment on the back of new model launches along with the lower base of the previous year and improved supplies.

Jefferies Research recently replaced Maruti Suzuki India with Eicher in its India model portfolio last week.

The brokerage expects Indian two-wheeler demand to grow at a faster pace than passenger vehicles over the next two years.

Eicher stock has lagged behind the National Stock Exchange Nifty Auto Index year-to-date (YTD) on competitive concerns.

However, the brokerage believes there would be a limited impact on Eicher from Harley-Davidson and Triumph launches and believes that there is potential for rerating as confidence in long-term market share sustainability rises.

Nomura Research, too, expects the two-wheeler sector to outperform the four-wheeler space on the rebalancing of growth, low base, and potential for pre-election rural spending.

Given the weak rural demand conditions, Hero MotoCorp stock has lagged behind its peers on growth and returns.

However, the brokerage believes that Hero MotoCorp needs to pull back market share in higher growth segments (above 125 cc) where it has lost share.

Given the focus on investments to drive growth, execution will be key for new products such as electric vehicles (EVs), Harleys, and 125 ccs.

Hero MotoCorp currently trades at 13.6 times its 2024-25 earnings per share, which is inexpensive, but rerating depends on the stronger success of new products which has been lacking so far.

At 41 per cent of revenues, Bajaj Auto has the highest exposure in the listed two-wheeler/three-wheeler space to exports.

While two-wheeler exports for the sector were down 20 per cent Y-o-Y in the first half of 2023-24 (FY24), overall volumes for the full year are expected to be flat due to recovery in the second half.

This will be driven by better availability of foreign exchange in some geographies and supply issues, which are largely showing signs of easing, says Motilal Oswal Research.

The other trigger for the stock has been the ramping up (production/distribution) of the Triumph motorcycle to 10,000 units a month currently, while Chetak EV capacity is expected to be improved to 20,000 units a month over the next couple of months.

A strong 20 per cent growth in the festival season and a new model launch should ensure continued growth.

Morgan Stanley, which has an ‘overweight’ call on the stock, expects a gradual recovery in exports.

TVS Motor has been gaining market share, with its share rising to 16.4 per cent from just under 12 per cent a decade ago.

New launches and an expanding distribution network are expected to add to the gains.

The company’s YTD sales in FY24 too are higher than peers Bajaj Auto and Hero MotoCorp.

Sharekhan Research expects the company to remain the fastest-growing in the two-wheeler segment, given its aggressive product launches, foray into new markets, and investments in newer and cleaner technologies.

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Ram Prasad Sahu
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