Prefer 2 wheelers in auto sector, says Prabhudas Lilladher
Brokerage house Prabhudas Lilladher has come out with its report on automobiles. According to the research firm, 13-15 percent CAGR in scooter volumes are expected for the next three years. "Accumulate Hero Motocorp & Bajaj Auto," advises Prabhudas Lilladher.
October 09, 2013 / 13:36 IST
Prabhudas Lilladher's report on automobiles
Scooter segment accounted for 23.6 percent of the two‐wheeler market during Apr‐ Sep'13 period: Led by new launches from Honda (New Activa), Hero (Maestro), TVS (Jupiter) and Suzuki (Swish), the scooter segment grew at a faster clip of 16.6 percent YoY for Apr-Sep'13 period against a flattish growth in the motorcycle segment (Exhibit 2 & 3). The faster volume growth of the scooter segment led to a 260bps improvement to 23.6 percent in its share of the two-wheeler market during this period. The main drivers for this growth are (a) growing acceptability of gearless scooters, particularly by women, (b) rising urbanization and increasing proportion of working women and (d) new launches. We expect 13- 15 percent CAGR in scooter volumes for the next three years.HMCL gains 350bps market share led by success of 'Maestro' in scooter segment during Apr‐Sep'13 period: Led by the success of its new offering 'Maestro' in the scooters' segment, HMCL reported growth of 40.8 percent YoY for Apr-Sep'13 period, thereby, gaining market share to the tune of 350bps to 20.1 percent.Motorcycle segment reports a 17.4 percent YoY growth in Sep'13: With rural economy showing signs of improvement given the good monsoons and capacity expansion by HMSI, motorcycle segment registered a positive growth of 17.4 percent YoY. As a result, YTD decline in motorcycle segment has been flattish.Honda Motorcycle and Scooter India (HMSI) gains 360bps market share at the cost of 300bps market share loss of Bajaj Auto in motorcycle segment: Driven by new launches and capacity expansion, HMSI reported 32.3 percent YoY growth, thereby, leading to a 360bps market share gain to 15.0 percent for Apr-Sep'13 period. Bajaj Auto reported a decline of 11.7 percent, thereby, losing market share to the tune of 300bps to 21.5 percent during this period. At the same time, HMCL reported a decline of 3.0 percent YoY for Apr-Sep'13 period, thereby, conceding 190bps market share which stood at 51.4 percent in the motorcycle segment.Bajaj Auto concedes 11.7 percent and 2.2 percent market share in both key segments i.e. 110‐125cc as well as 125‐150cc segment, respectively: On account of lower sales of 'Discover' and 'Platina', Bajaj's volumes declined by 36.8 percent YoY in the 110-125cc segment as against the 7.9 percent growth in this segment. This led to 11.7 percent loss in its market share to 15.9 percent in Apr-Sep'13 period. On the other hand, HMCL gained 670bps in this segment, given the strong demand for HMCL's 'Ignitor' and 'Super Splendor'. (Exhibit 4&5). On the other hand, since Bajaj's 'Pulsar' is facing the heat from the competition (Yamaha and Honda), Bajaj Auto reported decline of 220bps in market share to 43.9 percent during Apr-Sep'13 period.Prefer Two‐wheelers over Four‐Wheelers: Three key factors leading to our stance are a) strong rural economy led by good monsoon and increase in MSPs b) export potential - Indian firms are better placed compared to Chinese counterparts on currency and labour cost front 3) Valuation attractive at 13- 14.0x 1yr fwd P/E, given the strong 18 percent earnings CAGR, coupled with strong balance sheet and better corporate governance. Maintain 'Accumulate' rating on both the stocks. However, given the steep run up of 22.5 percent in Bajaj Auto's stock price in last 1.5months, we believe one can book profits on the same.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
Read More
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
