Thematic Sector Report on Autos - Divergent trends in PVs and 2Ws - HDFC Securities

Our detailed model mix analysis of the personal mobility segments-two-wheelers (2Ws) and passenger vehicles (PVs)-indicates that downtrading trends are visible for the latter as the share of hatchbacks is up 350bps while that of compact SUVs is up 500bps in FY21. Given COVID, consumers are purchasing more to fulfil functional requirements. However, as a contrast, in 2Ws, the entry-level customer is impacted. The share of lower-end bikes has reduced 210bps in the product mix due to (a) 15% price hike owing to BSVI and (b) the downturn impacting customers at the lower end of the pyramid is more. Our view: as the PV segment is more resilient than 2Ws, we believe Maruti (BUY), being the market leader, would continue to benefit. We expect mid-teens growth in the car segment over FY22/23E. We roll forward our TP for Maruti to Rs 9,100 at 27x FY23E EPS (~15% premium to the long-term historic trading multiple). In 2Ws, Hero Motocorp would gain market share amidst a tepid market, driven by a revamped product portfolio.

- Passenger vehicles - hatchback segment 80% of market: Customers are purchasing compact vehicles in the PV segment as the share of hatchback cars (mini + compact, sub 4m) has risen to 80.1% of the market (+800bps over FY19)/ +350bps over FY20). Similarly, the compact SUV segment (sub 4m) is 41% of the market (vs 36% in FY19). Individuals are mostly purchasing to fulfil functional requirements, given their enhanced need for personal mobility. At the same time, the share of MPVs has fallen by 380bps, as these are typically used for group travel.

- For 2Ws, recovery is weaker than in PVs: Unlike the passenger car segment, in motorbikes, entry-level bike sales have reduced by 210bps in the overall product mix to 26.5%. It can be attributed to (a) 15% price hikes in the entry segment (due to BSVI) (b) customers at the lower end of the pyramid being more impacted in the downturn.

- Segmental/market share trends: The share of SUVs has risen to 38% of total PVs (up 400bps over FY20), driven by new product launches. Maruti remains the dominant OEM with a market share of 48.5% (vs.51% in FY20). While the company has sustained market share in passenger cars (at 64%), it has ceded share in SUVs, due to its limited presence in the mid-SUV segment (above 4m). We believe the OEM would launch new models in this segment. In the interim, we expect Maruti to benefit from a broader recovery in PVs and are factoring in mid-teens volume growth over FY22/23E.

- Hero's market share at a multi-year high: Within 2Ws, the share of motorbikes has risen to 67.5% in FY21 (+310bps over FY20) in the product mix. Higher sales in the rural segment are the driver of this trend as the agri economy has been healthy. Hero Motocorp has benefited from this as its 2W market share is up 280bps to 38.6%, which is at a multi-year high. Even within the motorbike segments, the share of Hero in the entry (65%) and executive segment (71%) is at record levels. We believe that going forward, the OEM would benefit from its revamped product mix as well as its entry into new segments, including premium motorbikes.

Source : Equity Bulls

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