After languishing since FY19, two-wheeler development to outpace passenger autos in FY24-25

• The longer term appears vivid for India’s two-wheeler makers, who are actually anticipated to outpace their friends within the passenger autos phase over the subsequent two years.
• The 2-wheeler phase is predicted to learn from an imminent substitute cycle in addition to a shift in shopper shopping for in direction of electrical autos, and premium scooter and bikes.
• Total, the outlook for the Indian auto sector throughout segments is constructive, with Jefferies anticipating a quantity development within the vary of 11% to 18% in FY24 and FY25.

The longer term appears brighter for India’s two wheeler makers who’ve seen a quantity decline of practically 35% between FY19-22. Going ahead nonetheless, world brokerage Jefferies expects the two-wheeler phase to outpace the passenger automobile phase gross sales development over FY24-25.

The substitute cycle, which was delayed by the pandemic, will kick within the present and subsequent fiscal years, imagine analysts at Jefferies.

Total, its outlook for the Indian auto sector throughout segments is constructive, with Jefferies anticipating a quantity development within the vary of 11% to 18% in FY24 and FY25.

“We stay constructive on Indian autos with the sector in midst of a powerful earnings cycle. Sturdy top-line development and higher margins ought to gas double-digit earnings per share compounded annual development price (CAGR) for many corporations,” mentioned Jefferies.

Regardless of a difficult world surroundings in FY23, Indian auto corporations made the many of the first disruption-free 12 months after the Covid-19 pandemic. Home gross sales rose 21% year-on-year within the 11 months of FY23 when in comparison with the identical interval in FY22.

Trade physique Federation of Car Sellers Affiliation (FADA) underlined that FY24 will probably be a 12 months of consolidation, with development anticipated to be within the low single digits as a consequence of worth hikes and inflation impacting entry-level gross sales, amongst different elements.

Two-wheelers to endure premiumisation

Heading into FY24, the analysts at Jefferies be aware that elements like a low base and substitute demand will help quantity development within the two-wheeler phase. It’s not simply the volumes that are anticipated to choose up – different elements like shifting shopper preferences in direction of extra premium autos and softening commodity costs are anticipated to help the margins of auto corporations going ahead.

“We anticipate 1% to 4% earnings earlier than curiosity, taxes, depreciation and amortisation (EBITDA) margin growth for many of our coated auto OEMs over FY23-25E, led by higher pricing energy amid good demand, and working leverage profit,” mentioned Jefferies.

Whereas passenger autos witnessed premiumisation in FY23 as properly, as witnessed by the sustained development in demand for the dearer sports activities utility autos (SUV) over entry-level choices, analysts recommend an analogous development of premium two-wheelers can be rising.

In response to Jefferies, whereas sub-125cc two-wheelers share will drop from 52% in FY22 to 45% by FY26, the share of premium scooters and bikes is predicted to rise from 44% to 53% on this interval, with electrical autos additionally aiding this shift.

TVS Motor, Tata Motors prime picks as EVs collect tempo

Whereas the outlook for the Indian auto sector stays wholesome over the subsequent two years, the analysts at Jefferies have picked TVS Motor and Tata Motors as their favourites, aside from auto parts producer Sona BLW.

The widespread issue between these three corporations is that they cater to the electrical automobile demand. Within the listed house, TVS Motor leads the market when it comes to electrical two-wheelers, whereas Tata Motors has a market share of 80% in electrical passenger autos.

“TVS needs to be a key beneficiary of the potential two-wheeler demand restoration in each India and export markets. It has additionally risen to the second place in electrical two-wheelers with its EV market share approaching that of inner combustion engine (ICE) scooters,” the brokerage mentioned.

Tata’s early shift to electrical autos displays its dominance on this house (electrical passenger autos), and likewise in its personal portfolio – electrical autos now account for practically 15% of Tata Motors’ portfolio. Its British subsidiary, JLR, additionally has a powerful order ebook and its give attention to promoting higher-margin SUVs ought to assist increase Tata Motors’ general margins, too.

On the entire, regardless of issues of a world financial slowdown, Indian auto corporations are a wholesome development over the subsequent two years due to strong home demand, and an anticipated restoration in world markets.

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