The road has been a bitter symphony over the past five years for the auto industry. Several challenges ranging from emissions changes to the latest Covid-19 related bumps have hit supply chains globally, as the industry struggles to keep pace with its production and sales due to semiconductor shortages. Several other factors also played a major role in taking the region on a slippery path. However, the sector is on a recovery path, and the growth is expected to be driven by new launches and brand strength. TVS Motor and Maruti Suzuki are the favorites in the auto basket.
Analysts Vivek Kumar and Raunak Mehta of JM Financial in their automobile research note highlighted that domestic automobile The industry has faced many challenges during the last five years. Multiple rounds of commodity-inflation-led price hikes ranging from emissions changes, mandatory TP motor insurance, safety-related regulations (mandatory ABS/CBS, driver-side airbags, speed warning alarms, seatbelt reminder alarms, crash test norms compliance, etc.) As far as. hiking
According to both, this increased the upfront acquisition cost of the vehicle by 20-30%.
On top of that, JM Financial analysts pointed out that Covid-related supply disruptions, semi-conductor shortages, rural slowdown and fuel prices increased by 40-50% during the same period.
However, despite these adverse conditions, there are sub-segments within both passenger vehicles and two-wheelers that have performed well according to analysts at JM Financial.
Explaining the new launches as the key to increasing PV sales, JM Financial analysts said that in the last 5 years, the on-road price-to-customer has increased by c.20-33% across various PV sub-segments . However, UV including both the SUV and MUV segment has bucked the trend and has managed to post a healthy c.12% CAGR (SUV: 12% CAGR; MUV: 11% CAGR) during the same period. It was powered by customer-pull and OEM focus for MUV/SUV-ish type vehicles. The number of players in the SUV and MUV segment increased from 14/2 in FY17 to 17/6 respectively by FY’22. In the last five years, c.40 new models were launched in this segment, thereby increasing the share of UV segment from c.25% to c.48%. In contrast, the passenger car segment saw only 12 new vehicle launches, hence the segment underperformed the UV segment.
“We acknowledge, the passenger car segment (mostly entry-level hatchbacks) is relatively more sensitive and susceptible to fuel price hikes, but then also favors the availability of higher CNG models,” said JM Financial Analysts.
Similarly in the two-wheelers segment, JM Financial analysts said the impact of multiple disruptions and hike in vehicle prices is evident across the board. Entry-level motorcycles are also affected by the rural slowdown and a massive 40% increase in petrol prices. The high-end motorcycle segment (>200cc) faced challenges in securing semiconductor chip supply (RE Monthly Volume Average FY19/FY21/FY22e:67k/48k/42k). The price of entry-level motorcycles has gone up by c.35%, while the increase in higher-end motorcycles is limited in the range of 20%, purely due to the higher price base. However, even against this background, one sub-segment outperformed the rest.
In company-wise terms, analysts at JM Financial said in the report that during the last five years, the domestic PV business of Tata Motors witnessed the same headwinds as other OEMs. However, with the ‘New Forever Range’, they have revamped the entire product portfolio – launching 7 new models (PC: 3; UV: 4) in the last 3 years. These launches resulted in a volume CAGR of c.16% (- 0.9% CAGR for the industry) during FY 17-22e. While the acquisition cost of Nexon has also increased by 25-30% (like other products in the industry), the market share still increased from c.6% in FY2017 for YTD’FY22 and its EBITDA margin to c.12 % Has occurred. Increased from c.-12% in FY18 to over c.4% in FY22.
Further, he added in the research note that taking TVS as another case, despite sharp price inflation across the 2W industry and with several headwinds, the Apache portfolio has performed well (Volume CAGR 2% vs -1 % drop in 150-200cc) new entrants of motorcycles (Yamaha and Hero) over pre-FY17-22e). The strong brand pull and offered value proposition have helped it to beat the performance of the segment.
“Based on this, we are confident in Maruti’s new product cycle. We prefer Maruti Suzuki and TVS Motor among domestic auto majors,” the two said in the note.
Maruti has been given a buy rating by JM Financial. Vivek Kumar in a research note said, “MSIL launched five products back-to-back including Ertiga, Ciaz, Brezza, Baleno and S-Cross, with success ratios exceeding 80%. The previous product cycle was effectively On important parameters both market share and margin. Looking at the list of features in Baleno 2022, we get the same comfort and reiterate our BUY stance on MSIL. We are on course to arrive at a fair value of March ’23. Let’s assume 25x PE. 9,500.”
Shares of Maruti Suzuki saw positive performance on Wednesday before closing on by 7600.35 up each 162.45 or 2.2% on BSE. TVS Motor also closed in green by 622.25 each up 9.65 or 1.6% on the same exchange.
download
The app will get 14 days of unlimited access to Mint Premium absolutely free!