After languishing since FY19, two-wheeler growth to outpace passenger vehicles in FY24-25

After languishing since FY19, two-wheeler growth to outpace passenger vehicles in FY24-25
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  • The future looks bright for India’s two-wheeler makers, who are now expected to outpace their peers in the passenger vehicles segment over the next two years.
  • The two-wheeler segment is expected to benefit from an imminent replacement cycle as well as a shift in consumer buying towards electric vehicles, and premium scooter and bikes.
  • Overall, the outlook for the Indian auto sector across segments is positive, with Jefferies expecting a volume growth in the range of 11% to 18% in FY24 and FY25.
The future looks brighter for India’s two wheeler makers who have seen a volume decline of nearly 35% between FY19-22. Going forward however, global brokerage Jefferies expects the two-wheeler segment to outpace the passenger vehicle segment sales growth over FY24-25.

The replacement cycle, which was delayed by the pandemic, will kick in the current and next fiscal years, believe analysts at Jefferies.

Overall, its outlook for the Indian auto sector across segments is positive, with Jefferies expecting a volume growth in the range of 11% to 18% in FY24 and FY25.

“We remain positive on Indian autos with the sector in midst of a strong earnings cycle. Strong top-line growth and better margins should fuel double-digit earnings per share compounded annual growth rate (CAGR) for most companies,” said Jefferies.

Despite a challenging global environment in FY23, Indian auto companies made the most of the first disruption-free year after the Covid-19 pandemic. Domestic sales rose 21% year-on-year in the 11 months of FY23 when compared to the same period in FY22.


Industry body Federation of Automobile Dealers Association (FADA) underlined that FY24 will be a year of consolidation, with growth expected to be in the low single digits due to price hikes and inflation impacting entry-level sales, among other factors.

Two-wheelers to undergo premiumisation

Heading into FY24, the analysts at Jefferies note that factors like a low base and replacement demand will aid volume growth in the two-wheeler segment. It’s not just the volumes which are expected to pick up – other factors like shifting consumer preferences towards more premium vehicles and softening commodity prices are expected to aid the margins of auto companies going forward.

“We expect 1% to 4% earnings before interest, taxes, depreciation and amortisation (EBITDA) margin expansion for most of our covered auto OEMs over FY23-25E, led by better pricing power amid good demand, and operating leverage benefit,” said Jefferies.

While passenger vehicles witnessed premiumisation in FY23 as well, as witnessed by the sustained growth in demand for the costlier sports utility vehicles (SUV) over entry-level options, analysts suggest a similar trend of premium two-wheelers is also emerging.

According to Jefferies, while sub-125cc two-wheelers share will drop from 52% in FY22 to 45% by FY26, the share of premium scooters and bikes is expected to rise from 44% to 53% in this period, with electric vehicles also aiding this shift.

TVS Motor, Tata Motors top picks as EVs gather pace

While the outlook for the Indian auto sector remains healthy over the next two years, the analysts at Jefferies have picked TVS Motor and Tata Motors as their favourites, apart from auto components manufacturer Sona BLW.

The common factor between these three companies is that they cater to the electric vehicle demand. In the listed space, TVS Motor leads the market in terms of electric two-wheelers, while Tata Motors has a market share of 80% in electric passenger vehicles.

“TVS should be a key beneficiary of the potential two-wheeler demand recovery in both India and export markets. It has also risen to the second position in electric two-wheelers with its EV market share approaching that of internal combustion engine (ICE) scooters,” the brokerage said.

Tata’s early shift to electric vehicles reflects its dominance in this space (electric passenger vehicles), and also in its own portfolio – electric vehicles now account for nearly 15% of Tata Motors’ portfolio. Its British subsidiary, JLR, also has a strong order book and its focus on selling higher-margin SUVs should help boost Tata Motors’ overall margins, too.

On the whole, despite concerns of a global economic slowdown, Indian auto companies are looking at a healthy growth over the next two years thanks to robust domestic demand, and an expected recovery in global markets.


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