Two wheelers: The best bet is... - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Two wheelers: The best bet is...

Mar 31, 2004

On account of availability of cheaper finance, buoyant rural demand and a rapid growth in the number of youngsters clamouring for their first set of wheels, the two wheelers market in India has grown at a CAGR of 10% in the past five years and has emerged as the second biggest market in the world. Moreover, there has been a shift in preferences towards motorcycles and ungeared scooters as these segments have been able to increase their share in the total two-wheelers pie. While motorcycles sales have grown at a CAGR of around 30%, and accounted for 74% of the total two wheeler market in the country in FY03, ungeared scooters have grown at a rate of 22% and accounted for 11% of the total two wheeler market during the same period.

Going forward, it is expected that the motorcycles sales will grow in the region of 15% in the next 2-3 years and push its percentage contribution in the overall two-wheeler pie to 80%. Thus it is clear that the growth and the profitability of a two wheeler company is critically dependent upon its standing in the motorcycles segment of the industry. It is no coincidence that the three largest players in the industry viz. Hero Honda, Bajaj Auto and TVS, are the ones who occupy the top three slots in this segment.

The P/E multiples...
  Face value Current price 9mFY04 (annualised)
Bajaj Auto 10.0 884.0 12.5
Hero Honda 2.0 476.0 13.8
TVS Motors 1.0 84.5 15.1

Therefore if an investor wants to participate in the sector growth story, he perhaps need not look beyond these three players. As far as the valuations are concerned, Hero Honda, the largest motorcycles manufacturer in the country and predominantly a bike manufacturer is trading at a discount to its peers. While the company had a sedate first half of the year, sales picked up post September and the company is likely to close the current year with sales in excess of 2 m units, the first for any auto company in India. Besides despite growing competition in the segment, the company commanded a market share of 44%. While the next 2-3 years are going to be crucial from the industry's point of view, we believe Hero Honda has some upside potential on the basis of its strong product portfolio and access to world-class technology, courtesy its tie up with Honda Motors.

The company's major rivals, Bajaj Auto and TVS Motors are not purely motorbike manufacturers and have products in other segments such as mopeds and scooters as well. Post its split with Suzuki, TVS Motors invested heavily in R&D and came out with a offering called 'Victor' in the executive segment, which met with a favorable response, especially in the Southern markets. Recently, the company has rolled out a new model called 'Centra' and the initial response to it has also been favorable. Besides, the company's offering in the ungeared scooter segment called the 'Scooty' is also doing well and had cornered a market share of 29% in FY03 the ungeared scooter segment. Thus, despite having a third best market share of 19% in motorcycles and presence in non-growth segments like mopeds; the company is trading at a premium to its deep pocketed and bigger rivals like Bajaj Auto and Hero Honda. Optimism could be due to the company's inherent R&D strengths and its growing clout in the ungeared scooter segment.

Bajaj Auto on the other hand trades at a discount to TVS Motors mainly on account of the fact that the company has presence in geared scooters, which is fast waning in popularity owing to emergence of ungeared scooters. Moreover, while TVS launched 'Centra' and thus was able to counter the low volumes growth, Bajaj Auto has failed to meet market expectations, as the volumes have seen a marginal 4% YoY growth in December 2003 and the performance in the next month has also not been encouraging. Although the three-wheeler market, where the company is a market leader is likely to grow at a good pace, in the near term, the risk seem to outweigh the positives.

It should be noted that Bajaj Auto and TVS were late to capitalize on the growth in the motorcycles segment and as a result, Hero Honda walked away with most of the gains. However, of late, new product launches have enabled both the companies to increase their market share and thus narrow down the gap between them and Hero Honda. While Bajaj Auto has increased its market share from 16% in FY00 to 23% in FY03, the same for TVS has improved from 16% in FY02 to 19% in FY03. Meanwhile Hero Honda's share has come down from a peak of 51% in FY01 to 44% in FY03. Therefore, while launch of one model can bring about a perceptible shift in market share, the company that will come out winners is the one that consistently launches cost competitive and fuel-efficient models.

Equitymaster requests your view! Post a comment on "Two wheelers: The best bet is...". Click here!


More Views on News

Bajaj Auto vs Hero MotoCorp: Which Stock is Better? (Views On News)

Dec 31, 2021

Find out how these two automobile companies stack up against each other.

India's Top EV Stocks: Generating Returns for Investors? (Views On News)

Dec 8, 2021

We look at the top EV stocks from each space and the returns they are generating for investors.

Massive Surge in the Shares of Tata Motors Today. Key Factors Favouring the Rally (Views On News)

Oct 13, 2021

Tata Motors zooms 23% after report of TPG investing Rs 75 bn in EV arm.

4 Ways to Play the EV Opportunity (Views On News)

Sep 6, 2021

The EV disruption is happening faster than you think. Here's how you can ride the Indian EV megatrend.

Semiconductors Are Big News. Here's What You Should Know... (Views On News)

Jul 27, 2021

The global semiconductor chip shortage is likely to continue till 2022 before it eases gradually.

More Views on News

Most Popular

India's Best Semiconductor Stocks Views On News (Views On News)

Jan 7, 2022

Modern wars are fought with semiconductors. India's best semiconductor stocks have big tailwinds from defence and manufacturing.

10 Indian Companies with the Fastest Growth in Dividend Payouts... (Views On News)

Jan 10, 2022

These companies have been consistently paying higher dividends for several years.

Tata Steel vs SAIL: Which Stock is Better? (Views On News)

Jan 13, 2022

With government initiatives set to boost the steel sector, find out who has a better chance of coming out on top.

Looking for Consistent Compounding Stocks? Here's a Watchlist for You (Views On News)

Jan 6, 2022

These companies have generated mind boggling returns for investors over the years.

Watch Out for these 4 Indian Companies Betting Big on EV Supply Chain (Views On News)

Jan 11, 2022

The upside in supply chain players could be huge but a delay in the transition to EVs, or any policy related hiccups could end the momentum.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jan 18, 2022 (Close)