Within two-wheelers, scooters will continue to outperform. They did better than the industry with 20 per cent growth in FY18 as compared to motorcycle growth of 13.7 per cent. The share of scooters in industry volumes increased by 140 basis points to 33.3 per cent in FY18.
Kapil Singh and Siddhartha Bera of Nomura expect this trend to sustain due to rising female literacy and improving per capita income levels in states. This should help scooters improve its share to 40 per cent by FY22, they add. In addition to the domestic demand, two-wheeler exports are on a strong wicket. Anupama Arora, vice-president and sector head - corporate ratings, ICRA, says, “The recovery in oil prices has resulted in higher demand from select international markets, which coupled with new markets
explored by automakers would drive export growth in the current fiscal.”
Given strong demand across segments, two-wheeler stocks which have underperformed the markets
for the major part of last year should do well. Among them, Hero MotoCorp, Bajaj Auto and TVS Motor are seen as key beneficiaries of rural recovery. Though Eicher Motors would also gain, it is more of an urban play. The only headwind is high raw material costs, which would weigh on profit margins of companies.
Given its dominant share in entry-level motorcycles and higher exposure to rural-market driven states, the company would be a major gainer. What would add to volumes are new launches in fast-growing segments of premium motorcycles (Xtreme and Xpulse bike in the 200cc segment). Hero MotoCorp’s scooter sales revived in the second half of FY18 post the launch of refreshed Duet and Maestro Edge; new variants (125cc) of these scooters will drive growth going ahead. Given rural trigger and potential market share gains in these segments, most analysts have a buy on the stock.
Bajaj Auto underperformed the domestic market posting a five per cent volume growth in FY18. It has started FY19 on a strong note with motorcycle volumes up 19 per cent, and three-wheeler growth at a strong 83 per cent. What should help the company going ahead, is growth revival in export markets, continuing three-wheeler demand and a major presence in the faster-growing premium motorcycle segment. However, for the stock, which has been the worst performer in the two-wheeler pack over the last year, major rerating hinges on market share gains in the overall domestic motorcycle space where it has trailed peers.
TVS Motor Company
The company has gained market share over the last three years by filling its product gaps. Volumes in April, too, were strong led by the launch of the refreshed version of Apache. While the company is moving up the market share ladder by focusing on the growth segments of 150cc and above segment in motorcycles, higher three-wheeler sales and scooters are positives, both for revenue growth and margins.