Bajaj vs TVS: How market share and EV play pans out for these 2W players

• The 2W players have reported a good set of volume growth in Q3 due to the festival demand effect.
• Domestic business is on a strong footing, exports might continue to remain slow and grow only gradually.
• Rising raw material expenses, marketing spends of EV launches and more might stress margins going ahead.
  

As Indians regained their love for two-wheelers last festive season, two-wheeler majors Bajaj Auto and TVS Motor posted a good set of earnings in the December quarter. Both the companies reported robust domestic volume growth, but analysts continue to worry about exports and EV businesses that might affect profitability going forward.

The stocks of Bajaj Auto and TVS Motor have also run-up by over 30% in the last three months. Analysts remained cautious with regards to valuations, in spite of their confidence on double digit domestic volume growth in two- and three-wheelers, as well as market share gains in the offing due to new launches.

Bajaj Auto: Exports enter slow lane

Thanks to Triumph and KTM sales, Bajaj has been able to grow its volumes by 22% in Q3, with its average selling prices going up by 6.5%. It was also able to grow the market share of Triumph, and in select South markets it went as high as 20%. In spite of its performance, this success might not be replicated soon, experts worry.

Bajaj’s export volumes fell 7% YoY in Q3. While it affects all players, it hit Bajaj more because exports contribute 37% of volumes from exports. This business is also key to maintaining its margins around and above 20%. It might also see pressure in the coming quarters due to its aggressive EV push.

“The company has aggressive plans for the EV network expansion & new launches, which can drag overall margins. The company might need to sacrifice some margin as substantial increase in the freight cost during export softness is negative. This, along with signs of commodity inflation is another headwind in the making,” said a report by SMIFS.

The export growth picture would remain blurry due to Red Sea tensions, economic conditions in Africa and Asia markets, USD availability as well as tensions in the Red Sea. Analysts only see a gradual recovery in this business.

But most believe that its domestic volumes might grow at around 10-12% over FY23 to FY26 on the back of increasing EV sales and upcoming premium launches.

“Bajaj has seen a sharp revival in domestic 3Ws, thanks to pent-up demand; domestic 2Ws are buoyant with the industry tailwind; exports are gradually recovering and the company is finally making some serious strides in electrification as well. No doubt valuations are at a premium to the historical average, but the business fundamentals have improved as well,” says a report by HSBC Global Research.

Q3 FY24 earnings report of 2W majors
Source: Exchange filings, press releases

TVS: Expenses weigh even with market share gains ahead

TVS has been charting a sharp market share recovery in the last few years. Thanks to multiple launches within EV and scooter space like Zest, Jupiter, Ntorq, iQube, Radeon and Raider, its domestic market share went up to 16% in FY23, and 14% in FY18. Analysts see more juice in the business for the company which has reported a 25% volume growth in the third quarter.

“We see FY25 share at 18% on rising share of scooters, premium motorcycles. We estimate outperformance in overseas markets with new products/better penetration and build in FY23-26 domestic and or export 2W volume compounded annual growth rate (CAGR) at 12% and 6% respectively,” says a report by Nuvama.

TVS’ export revenues fell marginally by 0.9% on a year on year basis. Analysts also see its export business recovering gradually and peg it at lower single digits through FY25. Its exports contribute around 22% of its total volumes, unlike Bajaj.

The street’s top concern is its rising expenses due increasing input costs as well as its slow trudge ahead in average selling prices (ASPs).

“TVS Motor’s EBITDA is 3% below our estimates due to lower-than-expected ASPs and higher-than expected other expenses, partly offset by better-than-expected gross margins. Revenues increased by 1% QoQ led by 3% increase in volumes, partly offset by 1% decline in ASPs,” said a report by Kotak Institutional Equities.