New Delhi
A report by Kotak Institutional Equities highlights that valuations of domestic two-wheeler companies, including Hero MotoCorp, Bajaj Auto, and TVS Motors, are trading significantly above the long-term average multiples. The report suggests that these multiples are expensive, considering that the re-rating is not in line with the long-term growth prospects of the domestic industry, given high penetration levels and the expected increase in electrification, which may intensify competition and impact profitability. The report’s reverse Discounted Cash Flow (DCF) analysis on domestic listed two-wheeler players (Bajaj Auto, Eicher Motors, Hero MotoCorp, and TVS Motors) indicates a combined market share of over 90 per cent to justify the current market prices of these companies. This implies a negligible market share for Japanese original equipment manufacturers (OEMs) and other new-age OEMs in the electric vehicle (EV) segment. The implied market share for Bajaj, Eicher, Hero, and TVS Motors in the domestic two-wheeler industry is reported as 16 per cent, 7.5 per cent, 35 per cent, and 34.5 per cent, respectively. However, unlisted two-wheeler OEMs hold a market share of 34 per cent, dominated by the Japanese trio (Honda, Suzuki, and Yamaha). The report suggests that reaching such high market shares is highly unlikely due to growing competitive intensity, new launches, and the swift transition to electric vehicles. Citing ‘irrational exuberance,’ the report predicts that the demand for the domestic two-wheeler segment will grow at a high single-digit Compound Annual Growth Rate (CAGR) over FY2023-26E, driven by the recovery in the replacement segment and the increasing trend towards electrification. However, long-term growth expectations are expected to remain moderate at a mid-single-digit CAGR, considering the industry’s high penetration levels.
