The demand for 2-wheelers is expected to continue growing as rural demand increases and exports stabilize, although it may take a couple of quarters for a full recovery.
In the first week of July 2023, two global brands, Harley Davidson (HD) and Triumph, launched 400cc motorcycles in India at highly competitive prices and with attractive features. This has made these aspirational brands more accessible to Indian customers.
Data from Google Trends indicates that both these launches are generating similar levels of interest as the Royal Enfield (RE) Hunter launch, and are significantly stronger than the Honda CB350 (H’ness) and Jawa launches.
The search data for HD X440 and Triumph 400 indicate a very strong start for these aspirational brands, which have now become more accessible to consumers.
Even after two weeks since the launch, the search interest remains at similar levels to the RE Classic 350. In key RE markets (which account for more than 90% of its volumes), HD has around 44% of the search share in the first two weeks of launch, followed by Triumph with 36% share.
On a relative basis, urban-centric states have shown more searches for the new brands (43% share for HD and 41% for Triumph) compared to rural-centric states (44% share for HD and 30% for Triumph). Compared to past launches in the same segment, the search trends for HD and Triumph are similar to that of the Hunter 350 (a blockbuster product) and significantly stronger than the Honda CB350 (H’ness) and Jawa motorcycles.
The Hunter helped RE increase its market share, as the volumes of the RE 350cc portfolio (excluding Hunter) have remained stable at 46,000-47,000 units per month. While the new launches from HD and Triumph will also expand the market for super-premium motorcycles (>250cc), they may pose a threat to RE’s 350cc portfolio and limit its growth.
These new launches need to achieve sustainable volumes of 8,000-12,000 units per month to drive a 5% increase in earnings per share for Bajaj Auto/Hero MotoCorp (HMCL).
Interactions with leading channel partners indicate a sustained recovery in domestic 2W demand in July 2023, with retail sales expected to grow around 8-10% year-on-year. This growth will be driven by stable demand in urban markets and a gradual recovery in rural markets.
HMCL’s Passion model is performing as expected and retail sales continue at a good pace. Inventory levels at most 2W dealerships are healthy, with an average of 40-45 days, although HMCL has the highest inventory at 60 days. RE currently has an inventory of 2-3 weeks. Overall, we anticipate a volume compound annual growth rate (CAGR) of 9-11% for 2-wheelers. We recommend Hero MotoCorp in the 2W sector and Endurance Technology as a good proxy to the 2W industry in the auto ancillary sector.
HeroMotocorp: Target Rs 3,475
HMCL is a leading player in the domestic 2W industry and specializes in the 100cc motorcycle segment. Scooters account for only 8% of the company’s sales.
Furthermore, the 100cc Motorcycle, which is the company’s core product, is considered less susceptible to disruption from electric vehicles. We expect revenues/EBITDA/PAT to grow at a CAGR of 11%/18%/19% over FY23-25E.
Endurance Technology: Target Rs 2,000
Endurance is the best choice for investors looking to gain exposure to the Indian 2W industry, as it has the potential to increase its market share through technological advancements and new products.
In addition to its expertise in aluminum die-casting in the EU, the company has opportunities to increase its contribution from the passenger vehicle segment.
We anticipate that the company will maintain its margins at the current level, supported by a recovery in underlying industries, the increase in new orders, and lower energy costs in the EU.
(The author is Head – Retail Research, Motilal Oswal Financial Services)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)