Two Wheeler Industry
SECTOR REPORT
PRIVATE CLIENT RESEARCH MAY 13, 2010
Arun Agarwal arun.agarwal@kotak.com +91 22 6621 6143
Two Wheeler Industry
Fundamentals still attractive; valuations......
Over the years the two wheeler sector has played a key role in a country like India where majority of population lives in rural or semi-urban areas without adequate transportation facilities. The Indian two wheeler market with an annual domestic sale in excess of 9mn units is 2nd largest globally and accounts for 75% of the total domestic automobile industry sales volume and that clearly demonstrates the popularity of two wheelers among the Indian consumers. After facing a slowdown in FY08 and FY09, the two wheeler industry made a remarkable come back in FY10 and we are optimistic about growth prospects in FY11E. Current retail demand is quite robust and this, coupled with new launches and players' focus on volume generating 100cc segment, would be the main growth driver for the industry in FY11E. Volumes in FY10 grew at a significant pace and on that high base in FY11E industry volumes are expected to grow though at a relatively moderate pace. We expect the domestic two wheeler volumes growth rate to come down from 26% in FY10 to 15% in FY11E. Due to relatively lower base and new launches, we expect players like Bajaj Auto (BAL) and TVS Motor (TVS) to outperform the industry volumes growth rate in FY11E. On the other hand, Hero Honda (HH) is expected to underperform on back of enhanced competition and relatively much higher base. We have an ACCUMULATE rating on all three stocks with preference for BAL and TVS. Volume growth to come down but remain decent in FY11E
Companies covered
Hero Honda Motors Bajaj Auto TVS Motor ACCUMULATE ACCUMULATE ACCUMULATE
Industry sales volume (mn units)
12.0 9.0 6.0 3.0 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
Source: SIAM
2W Industry - Market Share Top 3 players (%)
HH BAL TVSM
50 40 30 20 10
After a substantial volume uptick in FY10, we expect the
PRIVATE CLIENT RESEARCH MAY 13, 2010
Arun Agarwal arun.agarwal@kotak.com +91 22 6621 6143
Two Wheeler Industry
Fundamentals still attractive; valuations......
Over the years the two wheeler sector has played a key role in a country like India where majority of population lives in rural or semi-urban areas without adequate transportation facilities. The Indian two wheeler market with an annual domestic sale in excess of 9mn units is 2nd largest globally and accounts for 75% of the total domestic automobile industry sales volume and that clearly demonstrates the popularity of two wheelers among the Indian consumers. After facing a slowdown in FY08 and FY09, the two wheeler industry made a remarkable come back in FY10 and we are optimistic about growth prospects in FY11E. Current retail demand is quite robust and this, coupled with new launches and players' focus on volume generating 100cc segment, would be the main growth driver for the industry in FY11E. Volumes in FY10 grew at a significant pace and on that high base in FY11E industry volumes are expected to grow though at a relatively moderate pace. We expect the domestic two wheeler volumes growth rate to come down from 26% in FY10 to 15% in FY11E. Due to relatively lower base and new launches, we expect players like Bajaj Auto (BAL) and TVS Motor (TVS) to outperform the industry volumes growth rate in FY11E. On the other hand, Hero Honda (HH) is expected to underperform on back of enhanced competition and relatively much higher base. We have an ACCUMULATE rating on all three stocks with preference for BAL and TVS. Volume growth to come down but remain decent in FY11E
Companies covered
Hero Honda Motors Bajaj Auto TVS Motor ACCUMULATE ACCUMULATE ACCUMULATE
Industry sales volume (mn units)
12.0 9.0 6.0 3.0 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
Source: SIAM
2W Industry - Market Share Top 3 players (%)
HH BAL TVSM
50 40 30 20 10
After a substantial volume uptick in FY10, we expect the