An overview of the sector
Indian middle class has grown quite rapidly since the early 90s. With increase in income the consumption has gone higher. A sizable
population prefers two wheelers as it is the fastest and most convenient mode of transport in large cities where traffic is a major issue. Two wheelers can be seen
in the remotest part of the country. This boom could not have taken place without the support of banks and NBFCs.
Two wheeler production has increased from 1,57,44,156 in FY2012-13 to 2,31,47,057 in FY2017-18. There was no drop in production during
any financial year of this period. Domistic sales have increased from 1,37,97,185 in FY2012-13 to 2,01,92,672 in FY2017-18.
Total two wheelers exported from India also increased from 19,56,378 in FY2012-13 to 28,15,016 in FY2017-18 with a slight dip in FY2016-17.
In the April-February period of FY2018-19, domestic sales registered a growth of 6.95 percent over the corresponding period of the last
financial year. Similarly, export of two wheelers also registered a growth of 18.05 percent in April-February period of FY2018-19 over
the corresponding period of FY2017-18.
Three wheeler domestic sales grew from 5,38,290 in FY2012-13 to 6,35,698 in FY2017-18. Export of three wheelers grew from
3,03,088 in FY2012-13 to 3,81,002 in FY2017-18. For the period April-February FY2018-19 domestic sales and export grew over
April-February period of FY2017-19 by 12.69 and 48.59 percent respectively.
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Challenges faced by the sector
The 2/3 wheeler sector has seen a bit of sluggishness in the last few quarters. A glance at the quarterly results of almost all the companies gives an indication
that demonetization had an huge impact on sales and net profit, GST also affected margin of all the companies quite significantly. The sector took it in its stride and negotiated these challenges by adopting pragmatic strategies.
Sales and margin improved in the next few quarters, but then a huge jump in the price of crude oil hit the segment hard. Automobile companies
resorted in offering heavy discount. Their sales increased, but profit remained stagnant. The latest crisis to hit the segment was a severe liquidity
crunch due to tightening of purse string by banks and NBFCs.
A snapshot of financial indicators of automobile companies in 2/3 wheeler sector
Atul Auto, which has a PEG of 0.71, has performed exceedingly well in the last quarter (Q3FY19) over Q3FY18 due to a much lower base. All the companies in this sector
have reported a higher sales in Q3FY19 over Q3FY18. Hero Motocorp is is only company in the sector which has shown a decline in both
EBITDA and Net Profit in Q3FY19 compared to Q3FY18 whereas Bajaj Auto (standalone) and Eicher Motors showed a decline in EBITDA in Q3FY19 compared to Q3FY18.
All the stocks, except Bajaj Auto, have given a negative return in the last one year. Stock prices of Endurance Technologies
(listed on October 19, 2016)), which manufactures auto parts, has performed quite well in the lase two and half years.
Eicher Motors and Hero Motocorp have a ROCE of 47 and 41 respectively.
Even though stocks of all the auto companies have given negative or no return in the last one year, they are still not selling cheap.
Atul Auto has the lowest Price to Book Value ratio of 3.16. With a Price to Book Value ratio of 10.16, Eicher Motors is definitely expensive.
TVS Motor Company and Atul Auto have a Debt to Equity ratio of 0.41 and 0.33 respectively.
Financial Performance of the last three years
TVS Motor Company