The demand recovery is expected to sustain going ahead as the rural demand picks up while exports seem to have largely bottomed out, though the recovery may take a couple of quarters.
The first week of July 2023 witnessed the launches of 400cc motorcycles in India from two global marquee brands viz., Harley Davidson (HD) and Triumph at very aggressive pricing and attractive features – making these aspirational brands highly accessible to Indian customers.
The Google Trends data suggest that both these launches are garnering similar responses to Royal Enfield (RE) Hunter launch and are way stronger than search trends visible during launches of the Honda CB350 (H’ness) and Jawa.
The search data for HD X440 and Triumph 400 indicate a very strong start for these aspirational brands, which have now become more accessible to consumers.
While the initial spurt for any such launch is expected, even after a fortnight of launch the intensity of the search is at similar levels as RE Classic 350. In key RE markets (>90% of its volumes), HD has ~44% of the search share in the first fortnight of launch followed by Triumph with 36% share.
On a relative basis, urban-centric states have witnessed more searches for new brands (43% share for HD and 41% for Triumph) as against rural-centric states (44% share for HD and 30% for Triumph).As against the past launches in the same segment, HD and Triumph’s search trends appear to be very much comparable with that of Hunter 350 (blockbuster product) and substantially stronger than that of Honda CB350 (H’ness) and Jawa motorcycles.
Hunter helped RE expand its size of the pie, as volumes of RE 350cc portfolio (ex of Hunter) have been stable at 46k-47k/month. While the new launches of HD and Triumph will also expand the pie of the super-premium motorcycles (>250cc), it may pose a threat to RE 350cc portfolio and curtail its growth.
These new launches need to generate sustainable volumes of 8k-12k/month to drive a 5% EPS upgrade for Bajaj Auto/Hero MotoCorp (HMCL).
Interactions with leading channel partners indicate a sustained recovery in domestic 2W demand in July 2023 as retails are expected to grow ~8-10% YoY, led by stable demand in urban markets and a gradual recovery in rural markets.
HMCL’s Passion is performing as per expectations and retails continue to happen swiftly. Inventory at most of the 2W dealers stands at a healthy level of 40-45 days, with HMCL carrying the highest with 60 days.
RE currently has an inventory of 2-3 weeks. Overall, we expect a volume CAGR of 9-11% for 2Ws. In 2Ws, we like Hero MotoCorp, while in auto ancillary we like Endurance Technology as a good proxy to the 2W industry.
HeroMotocorp: Target Rs 3,475
HMCL is a pure play in the domestic 2W industry and its core strength lies in the 100cc motorcycle segment. Scooters account for just 8% of the company’s volumes.
Moreover, 100CC Motorcycle, which is the core product of the company, is considered less prone to being disrupted by EVs. We estimate revenues/EBITDA/PAT to register a CAGR of 11%/18%/19% over FY23-25E.
Endurance Technology: Target Rs 2,000
Endurance is the best proxy play for the Indian 2W industry, with the scope to increase content, led by technological changes and new products.
Coupled with its knowledge of aluminum die-casting in the EU, there is scope to increase the contribution from the PV segment.
We expect the company to sustain margin at the current level, aided by a recovery in the underlying industries, the ramp-up in new orders, and falling energy costs in the EU.
(The author is Head – Retail Research, Motilal Oswal Financial Services)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)