The Indian two-wheeler market, which showed promising signs of recovery in the post-Covid period, is once again facing headwinds. Jefferies, a prominent investment bank, recently released a report significantly altering its outlook on major players within the sector. The report downgraded Hero MotoCorp Ltd. to "underperform" and Bajaj Auto Ltd. to "hold," while maintaining "buy" ratings for TVS Motor Co. Ltd. and Eicher Motors Ltd. This shift reflects a complex interplay of factors impacting the industry's growth trajectory and individual company performance.
Weakening Demand and Inventory Concerns
The primary driver behind Jefferies' revised outlook is a perceptible weakening in demand across the two-wheeler sector. Several key indicators point to this trend:
Muted Retail Registrations: A significant slowdown in the number of two-wheelers being registered indicates a decline in actual sales, suggesting consumers are delaying purchases. This is a crucial metric reflecting the health of the market.
High Inventories: Dealers are reporting elevated inventory levels, implying a mismatch between supply and demand. This situation necessitates price adjustments or promotional offers to clear stocks, impacting profitability.
Weak Dealer Enquiries: The reduction in inquiries from dealers further reinforces the softening demand. This reflects a pessimistic outlook among dealers regarding future sales, signaling a potential downward spiral.
Despite potential positive catalysts like income tax cuts and public sector undertaking (PSU) wage hikes, these positive influences seem insufficient to counteract the prevailing negative sentiment and sluggish demand.
Revised Industry Growth Forecasts
Based on these observations, Jefferies has revised its industry volume growth projections for fiscal years 2026 and 2027. The forecasts have been reduced by 6 and 2 percentage points, respectively. This results in a revised growth path of 8-11%, translating to a compound annual growth rate (CAGR) of approximately 10% through fiscal year 2028. This downward revision indicates a more conservative outlook for the sector's overall growth potential.
The implications of this revised forecast are significant, impacting earnings estimates for major players. For instance, Jefferies slashed its earnings per share (EPS) estimates for Hero MotoCorp and Bajaj Auto for fiscal years 2026-27. The reduction in earnings projections reflects the decreased volume expectations.
Hero MotoCorp: Market Share Decline and Earnings Revisions
Hero MotoCorp's domestic market share experienced a substantial drop, reaching a two-decade low of 28% in fiscal year 2025. This decline underscores the intense competitive pressures the company is facing. Coupled with the reduced industry growth projections, Jefferies' downgraded rating reflects concerns about Hero MotoCorp's ability to regain market share and deliver strong earnings growth in the near future. The 8-11% reduction in fiscal 2026-27 earnings estimates clearly highlights the severity of the predicted impact.
Bajaj Auto: Export Market Share Erosion
Bajaj Auto, another major player, also faced challenges. Its export market share for two-wheelers declined from a dominant 62% in fiscal year 2015 to 40% in fiscal year 2025. This considerable loss of market share in the export market signals a weakening competitive position and increased pressure from global rivals. The 5-7% reduction in earnings estimates for fiscal 2026-27 underscores the negative impact of the reduced volume assumptions and market share erosion.
Ola Electric's Waning Dominance in the EV Sector
The report also shed light on the evolving dynamics within the electric two-wheeler segment. Ola Electric Mobility Ltd., once a dominant player, has witnessed a significant decline in market share. Its share plummeted from a commanding 49% in the first quarter of fiscal year 2025 to a considerably lower 19% by the fourth quarter. This rapid erosion of market share reflects the intensifying competition in the EV sector and potential challenges in maintaining consumer trust and product relevance.
TVS Motor and Eicher Motors: Outperforming the Sector
In contrast to the downgrades, Jefferies maintained its "buy" rating for both TVS Motor and Eicher Motors. These companies demonstrate stronger resilience and growth prospects despite the overall industry slowdown.
TVS Motor: Market Share Gains and Strong EPS Growth
TVS Motor has achieved remarkable success, reaching an 18-year high of 18% domestic market share. This signifies strong performance across various segments, including motorcycles, scooters, and electric vehicles. The company's strategic positioning and product offerings seem to be resonating well with consumers. Jefferies anticipates a robust compound annual growth rate (CAGR) of 28% for TVS Motor's earnings per share (EPS) over fiscal years 2025-28. This optimistic outlook is further bolstered by the company's production-linked incentive (PLI) benefits, which help mitigate the impact of reduced volume projections. The relatively small (2-3%) cut in fiscal 2026-27 earnings estimates underlines the company's strong financial performance despite the industry headwinds.
Eicher Motors: Maintaining Market Leadership
Eicher Motors retains a commanding 30% market share in the premium 125cc+ motorcycle segment. This dominant position underscores the company's strong brand recognition and appeal within its target market. Jefferies projects a healthy CAGR of 14% for Eicher Motors' EPS over fiscal years 2025-28. This growth forecast highlights the company's sustained profitability and resilience in a challenging market.
Structural Headwinds and the Slow EV Transition
Jefferies' report identifies several structural factors hindering the growth of the two-wheeler sector. These include:
Affordability Concerns: The rising cost of living and inflationary pressures continue to exert pressure on consumer affordability, leading to delays in purchasing decisions.
Sluggish EV Transition: Despite price reductions and the introduction of new models, the adoption of electric two-wheelers remains slow. The penetration rate has plateaued at 5-6% for two years, highlighting consumer hesitancy and the challenges associated with the EV transition. Consumer trust and range anxiety continue to act as major barriers.
Jefferies projects a gradual increase in EV penetration to 10% by fiscal year 2028, but consumer trust remains a critical bottleneck for widespread adoption. Overcoming this hurdle will require significant efforts from manufacturers in terms of technology advancements, improved infrastructure, and targeted marketing campaigns to address consumer concerns. This slow EV adoption creates an additional drag on the overall growth prospects of the sector.
Impact on Stock Prices
The Jefferies report had a noticeable impact on the stock prices of the companies mentioned:
Hero MotoCorp: Experienced a decline of as much as 2.45% to Rs 3,902.90.
Bajaj Auto: Decreased by 2.09% to Rs 8,075.
TVS Motor: Showed an increase of 1.31% to Rs 2,771.5.
Eicher Motors: Rose by as much as 1.65% to Rs 5,906.5.
These price movements reflect investors' reactions to the report's findings and the revised outlook for each company. The market's positive reaction to TVS Motor and Eicher Motors underscores investors' confidence in their long-term growth potential, contrasting with the negative sentiment towards Hero MotoCorp and Bajaj Auto.
Conclusion: A Divergent Outlook for the Two-Wheeler Sector
Jefferies' report presents a mixed outlook for the Indian two-wheeler sector. While the overall industry faces significant challenges, with weakening demand and a slow EV transition, some companies demonstrate greater resilience and growth potential. The report highlights the importance of strategic positioning, product innovation, and addressing consumer concerns in navigating the complexities of the current market environment. The divergence in outlook between the companies analyzed underscores the importance of a granular approach to investment decisions within this dynamic sector. The future will depend on how effectively companies adapt to shifting consumer preferences, technological advancements, and the evolving regulatory landscape.