Will Two Wheelers Continue To Outperform PVs? | NDTV Profit
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00:00 We're talking auto now for the next couple of minutes.
00:03 Auto data has come in, sales data for the month of April.
00:08 Jai Kale, Senior VP Equity Analyst, Auto and Auto Ancillaries of Ellara Capital is joining us now
00:15 on the show. Jai, very good morning and great to have you on. Let's begin with the sales numbers
00:21 that we saw and auto has been on a complete tear. If I were to break up two-wheeler and passenger
00:26 vehicles, how would you rate the two? Yeah, good morning, Tamanna and good to have you know,
00:34 thanks for having me on the show. Also, you know, on the passenger vehicle and two-wheeler side,
00:39 if I have to break it up, if I have to see the core retail growth and I would like to assess the
00:44 core retail growth based on March plus April on a YOY basis because there has been a shift of
00:51 Navratra this year. Two-wheelers continue to, you know, spread the strong double-digit growth,
00:57 either close to around 17-18% on March plus April YOY growth, whereas passenger vehicles have been
01:02 a little sluggish in terms of growth around 4-5% on the retail side. On wholesale side,
01:09 of course, two-wheelers again are pretty strong at around 20-21% and passenger vehicles are lower.
01:15 Going forward, I think in May specifically, there are lesser number of marriage dates this year
01:20 versus last year. So growth will moderate significantly. But overall, if I have to think
01:25 about March plus April plus May, the growth should be good for two-wheelers, followed then by
01:30 passenger vehicles space. All right, you know, in passenger vehicles, you know, you've spoken about
01:37 and I was reading your note, you've spoken about how Maruti and M&M are your best picks. Now,
01:42 I'm wondering why, considering they've both run up significantly in terms of valuations,
01:48 do you still see potential here? Yeah, I think, you know, yes, they have run up significantly,
01:55 but, you know, both of them have different levers in terms of, you know, positive narrative. If you
02:01 see M&M, I think there are a few new launches expected in this year and their last couple of
02:07 years launches have been quite successful and that has aided them to have the highest market share
02:12 gains, you know, in the last one and a half year. Same with Maruti, I think Maruti's new launches
02:19 have done pretty well and their acceptance in the 10 to 20 lakh price category has been
02:23 quite good. What has, you know, hampered them is the stress in the first-time car buyers,
02:30 which we believe overall, you know, over the next couple of years should come back.
02:34 If the passenger vehicle industry growth, you know, story is intact in India and with the
02:41 per capita incomes improving. So, overall, I think, you know, the core penetration levels of
02:46 India passenger vehicles is quite low and Maruti and M&M with their strong product profile are the
02:51 best players from a medium term in terms of high growth profile. Plus, the margin profile has also
02:56 been quite satisfactory in the recent quarters. So, you should see close to a 15 to 20 percent
03:02 earnings growth for these companies going forward, which will be supportive of valuations as well.
03:08 Right. Jay, good morning. My question is to do with tractors. At the moment, what we're seeing
03:14 is a curious divergence between Mahindra and Escorts. Now, if you just consider the month-on-month
03:20 growth, Mahindra's growth has been 47 percent as against 10 percent of Escorts. Is there a reason
03:26 behind this divergence? Is there anything that stands out for you here? I think, you know,
03:32 tractors, it's very, you know, I would not want to see the month-on-month growth because it's quite
03:37 seasonal. There are shifts of inventory, addition, deletion, what each company, you know, takes. There
03:45 is some seasonal pattern as well because Navratra is more prominent this time of the year. Navratra
03:50 is more prominent in the northern regions, etc. So, I would be, you know, I would like to see
03:55 tractors more from a, you know, at least a six to eight month perspective and tractors historically
04:01 also, if you see the market shares have been quite sticky in this segment, while many of the players
04:05 have tried to do a lot of interventions, product interventions, market interventions, but market
04:11 shares in tractors are quite sticky. So, our view, you know, we need to take a call on the tractor
04:17 cycle rather than any market share differences between one player or the other. All right. Well,
04:23 Jay, what's also been very reflecting in the stock prices is the volumes for two-wheelers
04:28 at the moment. Of course, TVS Motor Company, clearly an art performer, but we haven't seen
04:34 you know, something like a Hero Motocorp or for that matter, Bajaj Auto. Well,
04:39 take a step back. What's the way forward, your preference in this list and let's not forget Aishan
04:45 Motors either. Yeah, I think, you know, TVS Motors has had a stellar kind of run in terms of both
04:53 volume market share margins as well as stock price movement and I think going forward, one would
04:58 expect, you know, that trend to continue. You know, we will see a few new launches coming in from
05:05 TVS Motors and mind you, in the last year, there were not many new launches that TVS had and still
05:10 they increased their market share on a yearly basis. So, you know, two-wheelers is a more of a
05:16 sticky product brand, you know, industry. So, once you have a successful model, it runs for quite
05:22 some time and you don't need as many product interventions once you have two, three products
05:26 that are sticky with the customer. So, you know, preferred picks would be Bajaj and TVS in the
05:32 two-wheeler space. Right, Jai. Then let's talk about the other big theme that is, well, potentially
05:38 on the cards for India and that's the new India EV policy. We have all sorts of news coming around
05:45 Tesla, though nothing specific with respect to it. There, still, there is a possibility of a lower
05:51 duty coming in as far as imports are concerned. You know, surrounding these themes, what analysis,
05:58 what assessment are you making at the moment? I think, you know, we need to see how this pans out
06:06 with the new entrant coming to India. Of course, the government has laid down their policy and has
06:12 made it quite attractive for players, not only for Tesla, but, you know, the others as well to kind of
06:19 get their act together in the EV ecosystem in India. So, it will be interesting to see how,
06:24 you know, the global players try and capitalize on this EV policy and try to make a mark in India.
06:31 Not many global players have been successful in the ICE category in India. So, I think, you know,
06:37 the EV category will be an interesting thing, but whatever happens, you know, I think the policy is
06:43 good from developing the EV ecosystem in India. So, you know, that's something that is important
06:49 because passenger vehicle EV market is quite large globally. In India, it's still in an
06:53 ascent stage. You still have penetration hovering around 2.5 percent. And this space is expected to
07:00 be seen from a medium to longer term perspective and not necessarily from the next one to two year
07:04 perspective. And I think entry of new large global EV players in India, if at all it happens,
07:10 is definitely good for the world EV ecosystem and it will be positive from the world and as
07:16 well as the EV space. Jay, I just wanted your take on JBM auto numbers on the face of it looks fairly
07:24 good. You know, ahead of open today, would you say this is definitely a pick or how would you
07:32 assess the numbers that have come in? It's already doing fairly well pre-open. I think JBM is
07:39 definitely a player on the EV buses. You know, they've done quite good orders on the EV buses
07:45 side and they're doing a lot of the electrification, you know, components, etc.
07:50 Currently, we don't have any coverage on JBM auto and hence would not want to give the stock view on
07:57 that. Profits are down 62 percent margins contract, but overall, you know, the stock has seen a good
08:05 at least a response in pre-open because the operating margins have been fairly stable.
08:11 Just broadening the scope of what we've said and we've taken your top picks Jay,
08:16 as far as two wheelers are concerned, but in the passenger vehicle space,
08:19 what would be your top couple of picks and also in auto angst? I wanted a view from you on X side
08:26 as well, if it's on that list at all. Yeah, I think from the passenger vehicle space,
08:32 like we've mentioned, you know, we have Maruti and M&M as our preferred picks in the passenger
08:37 vehicle space and the ancillaries, you know, our picks are, you know, Samil, Sonavi LW and
08:44 Uno Minda and yes, X side has done well to get the orders from the Hyundai and Kia that was
08:53 announced a few days back and that actually opens up the passenger vehicle lithium cell opportunity
08:58 for players like X side, which earlier probably, you know, the street was a little more apprehensive
09:04 of that, whether they would be able to crack that. This definitely is a positive development
09:09 for X side and, you know, people will now start valuing the lithium cell facility of X side a
09:15 little more favorably than they were doing earlier. Currently, we have an accumulated rating on X side.
09:20 All right, a final question from Maya and Jay, we have an impending IPO from Hyundai.
09:27 We are expecting an evaluation of around 22 to 28 billion dollars at the moment.
09:33 It does seem like it's at a significant premium, but does that mean that we could likely see
09:39 some of the other PV players like Maruti potentially see a re-rating on this account?
09:46 Yes, I think, you know, partially that is kind of playing out in the last, you know,
09:52 post the news of Hyundai's IPO, the valuation multiples of the other passenger vehicles have
10:00 been seen favorably. So that is definitely a possibility. But of course, it all depends on
10:06 the valuation of Hyundai, what it eventually comes out and, you know, all the detricities around it.
10:14 But in the lead up to that, definitely, you know, we have seen that positive rub off effect for the
10:20 other passenger vehicles. All right, thank you for that, Jay. Great to have you with us
10:26 here this morning and that extensive conversation on the auto space.