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The big getting bigger – category leaders reinforce their dominance
* Demonetization puts brakes on growth of passenger cars and
* Value continues to migrate toward scooters and SUVs, driven by
changing customer preferences.
* Uptrading in 2Ws/4Ws continues, as reflected in the increasing share
of premium motorcycles and PVs priced more than ~INR800k.
* Category leaders getting stronger as competition hurts second/third
ranked players more.
We took a deep dive into granular data on the Indian 2W/PV industry,
observing continuance of bigger trends in FY17, along with increased dominance
of category leaders in both 2W and 4Ws. While demonetization had stalled a
revival, there are early signs of a 2W export market recovery. Key highlights:
Demonetization puts brakes on recovery, especially of 2Ws
Demonetization had stalled the recovery in the auto sector, primarily
impacting the 2W segment due to its higher exposure to the rural market and
lower financing penetration. Between November 2016 and March 2017, while PV
volume growth slowed to 6% (v/s +11% over Apr-Oct 2016), 2W volumes fell 6%
(v/s +16% over Apr- Oct 2016). However, we note that normalcy has been restored
in PVs (volumes up ~10% in March 2017) and 2Ws have recovered to record flat
Value migration toward scooters/SUVs continues
The structural trend of customers preferring scooters in 2Ws and SUVs
in 4Ws continued in FY17. Scooters’ share increased to ~31.8% of 2W volumes
(+120bp YoY). Similarly, SUVs continued to grow faster than the PV industry
(32% growth in UVs v/s +9.2% in domestic PVs), increasing its share to 24.8% of
domestic PVs (+420bp YoY).
Premiumization continues in both 2Ws/4Ws
The trend of premiumization continued in both 2Ws and 4Ws, with
customers upgrading to relatively premium products. In 2Ws, motorcycles >150cc
grew by 22%, driving up the share of premium 2Ws by 190bp to 15.4% of domestic
2W volumes. In PVs, volumes of vehicles priced INR800k & above grew ~22%
YoY, translating into a higher share of products priced INR800k & above to
The big getting bigger: Category leaders gaining further dominance
Category leaders further strengthened their dominance in FY17, despite
intensifying competition . In the executive segment, HMCL’s market share
improved to 72% (v/s 61% three years back), despite the entry of TVS Victor. In
scooters, HMSI’s market share expanded to ~57% (+170bp YoY), at expense of HMCL
(-220bp) and TVS (- 60bp). In PVs, MSIL gained market share for the fifth
consecutive year (since Manesar issue), now commanding ~47.4% share of the
domestic PV industry.
New launches drive PV industry growth
FY17 domestic PV volumes grew 9.2% to 3.05m units, driven by ~30%
growth in UVs and ~4% in cars. New products (including ramp-up of last year’s
launches) drove entire growth, with 185% share of incremental volumes. The key
volume drivers were Brezza, Baleno, Tiago, Kwid and Ignis.
2W exports showing signs of recovery; other players eating into market
share of Bajaj Auto
After a prolonged period of weakness since 2HFY16, 2W exports are
showing signs of recovery with ~12.5% growth in 4QFY17 (v/s -6% in FY17). With
all the relevant players focusing on exports, the share of Bajaj Auto has
reduced 660bp to ~52% of 2W exports (motorcycle export share shrunk by 580bp to
60%). HMSI gained the most, with a 400bp increase in exports share to ~12%.
Valuation and view
We prefer 4Ws over 2Ws/CVs due to stronger volume growth and a stable
competitive environment. Our top picks are Tata Motors, Maruti Suzuki and Amara
Raja. We also believe that MM is an attractive play on a rural market recovery.