Automobiles and Components- Expect volumes to grow moderately

Automobiles and Components: Expect volumes to grow moderately

We expect a gradual recovery in domestic 2W segment volumes in the coming years due to continued increase in the cost of ownership, higher inflation and weak rural demand. In terms of segments, we expect electric scooter and premium motorcycle to continue to outperform; however, we expect ICE (internal combustion engine) scooter volumes to decline from FY2024E. Further, export 2W segment demand remains under pressure, given the slowdown in the African economy, which we expect to moderately recover from 2HCY23. We maintain our negative stance on 2W OEMs and retain rating on BJAUT (Reduce), HMCL (Reduce) and TVS (Sell).

We expect domestic 2W industry volumes to witness an 8% CAGR over FY2023-25E, mainly on account of continuing momentum in EV 2W sales and 10% CAGR in premium motorcycle segment volumes, led by newer launches and consumers’ preference for high performance vehicles. However, continued price increases by OEMs as well as higher inflation will continue to weigh on replacement demand, especially in the economy motorcycle segment. In addition, we expect domestic ICE scooter segment volumes to decline by 10% CAGR over FY2023-25E, as the electrification trend in the scooter segment continues to pick up pace.

We expect EV segment volumes to grow by 3X to 700k units in FY2023E, led by attractive subsidies by the central government under FAME-II policy, select state governments providing incremental subsidies as well as road tax concessions, newer launches at attractive price points, and further increase in prices in the ICE scooter segment. Further, we expect EV segment volumes to grow to 1.8 mn units by FY2025E.

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We expect a gradual recovery in domestic 2W volumes in the coming years on higher inflation, further increase in upfront cost, and weak demand from rural segment. Further, increased sales in the EV segment will continue to weigh on ICE 2W segment volumes and profitability. While the worst may be over in terms of volumes for the export 2W segment, we expect volumes to grow moderately in the coming years.