Scooters made a comeback and entry level bikes suffered. That has completely changed the fortunes of players.
Even as car and commercial vehicle sales began their plunge in 2011-12, two-wheelers (motorcycles, scooters and mopeds) held fast, recording a double-digit growth in volumes last year.
But coming into 2012-13, two-wheelers also have lost speed with volumes growing by only about 5 per cent in the first eight months of this year.
What are the trends surfacing in this industry at this juncture? And more importantly, if you own stocks such as Bajaj Auto, Hero MotoCorp or TVS Motors, how are these companies poised?
Scooters, flavour of the season
While the lull in motorcycle sales (0.3 per cent volume growth for April-November 2012) has pulled down the overall growth for two-wheelers, scooter volumes have actually grown at a strong 20 per cent.
Slowdown or boom, the trend of volume growth in scooters outpacing motorcycles has been happening in the industry for at least five years now. Thanks to this, from about 14.5 per cent in 2007-08, the share of scooters in total two-wheeler sales has now moved up to 21 per cent.
Agreed, with scooters commanding only about one-fifth of the total two-wheeler volumes even today, a part of their high growth can be attributed to a small base. But the fact that scooters have been steadily gaining a larger share of the two-wheeler pie cannot be denied.
Crowded traffic conditions, poor public transport, increasing number of women drivers, style and unisex appeal have been some of the demand drivers for gearless scooters, which form bulk of the market here.
With scooters proving to be a good counter to the slowdown in bike sales too, companies are vying with each other to cash in on this trend. Several launches in the last one year, such as the Vespa from Piaggio, the Yamaha Ray, Suzuki Swish and the Maestro from Hero are testimony to this.
However, the two listed players in this space — Hero (Pleasure, Maestro) and TVS Motors (Scooty series, Wego) are not on a strong wicket, thanks to Honda (Activa, Dio, Aviator).
While Honda has always remained the market leader in this segment, 2010-11 saw the company ceding market share to TVS and Hero. But that remained short-lived. From 43 per cent then, Honda’s market share in scooters has moved up to 49 per cent now.
But Honda’s aggressive marketing strategies after the split up with Hero have kept Hero’s share in the scooter segment stagnant at 16-17 per cent in the last two years. TVS’s market share has declined, coming down to 15.5 per cent, from 21 per cent two years ago.
Besides the stiff competition from Honda, a second reason for TVS’s lower share could be the positioning of its offerings. While the 90-125 cc scooter segment is where most of the action today lies, TVS has only the ‘Wego’ in this category. The flagship ‘Scooty’ falls in the 75-90 cc category, which has garnered lower interest in recent times, going by sales numbers.
Pockets of growth in bikes
The rising challenge from Honda is not restricted to scooters alone. In motorcycles, lower disposable income in the rural markets, high inflation and increasing fuel prices dampened the demand for entry-level bikes this year.
Volumes for bikes in the 75-110cc category (called mass commuter bikes) dipped by 2 per cent in April-November 2012-13, compared with the same period last year. Hero MotoCorp, the leader in this segment (CD Dawn/Deluxe, Splendor, Passion), bore the brunt of this fall.
Honda defied the trend, gaining volumes in this category, thanks to the smaller base of last year.
The company introduced the Dream Yuga, priced similar to the Splendor in the entry-segment in 2012. Second, as every other player in the 125-150 cc category bikes witnessed a dip in volumes, Honda again managed to grow its volumes here.
Third, Honda also cashed in on the strong demand for the middle-of-the-road (110-125cc) bikes this season. High interest rates and fuel prices could have prompted aspirants of premium bikes to settle for this category, as they offer good value for money. But even amidst competition from launches such as the Hero Ignitor, Suzuki Hyate and TVS Phoenix in this segment, Honda held its ground, managing a healthy growth in volumes with models such as the Shine and Stunner/Fi.
Thanks to all this, Honda now has a 11.5 per cent market share in motorcycles, up from 7.6 per cent in 2011-12. While Bajaj has managed to stick on to its 25 per cent share, Hero and TVS have been casualties.
With Honda planning to make India its biggest market for the two-wheeler business, the onslaught is expected to continue.
True, Bajaj Auto is not tempted by the thriving scooter business; yet, among the three listed players, Bajaj seems better placed to deliver. This is due to other diversifiers in its business model such as a strong presence in the three-wheeler segment, its export focus, its tilt towards middle and premium segment bikes and consequently its ability to consistently maintain 19-20 per cent operating margins.
For these very reasons, the Bajaj Auto stock has gained about 45 per cent in the last one year (29 per cent since April 2012) even as the Hero and TVS stocks languished.
That said, Bajaj’s current valuations at about 20 times its earnings for FY13 seem a little stretched. Especially so, when domestic bike sales are still not out of the dark and its exports have taken a hit due to some regulatory issues in destinations such as Sri Lanka.
Hence, existing investors can hold on or partially book profits, but fresh exposures need not be taken to the Bajaj Auto stock currently.
For the other two stocks, while the abovementioned troubles have levelled off TVS’s valuations at 10 times its estimated FY13 earnings, Hero, at 17 times, is only at marginal discount to Bajaj.