India's two-wheeler demand, which lagged behind passenger vehicles during FY21-23 due to the impact of the Covid-19 pandemic and rising regulatory costs,
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The domestic auto sector is expected to witness strong growth, especially in the two-wheeler (2W) and tractor segments. According to a Jefferies report, during FY24-27 (estimated), both these segments are expected to outperform the broader industry with a compound annual growth rate (CAGR) of 14 per cent and 10 per cent, respectively.
This is in contrast to relatively slow growth rates of 7 percent for passenger vehicles (PVs) and 4 percent for trucks.
India's two-wheeler demand, which lagged behind passenger vehicles during FY21-23 due to the impact of the Covid-19 pandemic and rising regulatory costs, is now experiencing a revival.
2 wheeler wholesales grew 14 per cent year-on-year in FY24, which was a better performance than the 8 per cent growth seen in PVs. Despite this surge, FY24 volumes for 2 wheelers are still 13 per cent lower than the FY19 peak, while PV volumes are 25 per cent higher.
Looking ahead, 2W is estimated to deliver an industry-leading 14 per cent CAGR during FY24-27, compared to 7 per cent for PV and 4 per cent for trucks.
Tractors are another bright spot in the auto sector, with the industry expected to witness a strong cyclical recovery. Tractor volumes are estimated to grow 6 per cent CAGR in FY25, followed by 12 per cent CAGR in FY26-27, supported by strong rural demand and favourable agricultural conditions.
The electric vehicle (EV) revolution is slowly making its way into the Indian 2W market, with the share of EVs in 2W sales growing from just 0.4 per cent in FY21 to 5 per cent by Q1FY23.
While government subsidies and new launches have fueled this growth, the recent cut in incentives for electric two-wheelers (e2W) has slowed the momentum, keeping the e2W share in the 4-7 per cent range over the last two years.
However, the EV market is expected to grow steadily, with the share of EVs in 2W sales projected to reach 7 per cent in FY25, 10 per cent in FY26 and 13 per cent in FY27.
EV adoption in the passenger vehicle sector has been slow, with EVs accounting for only about 2 percent of total sales.
The auto sector faced margin pressure in FY21-23 due to weak demand and a sharp surge in metal prices. Prices of steel, aluminium and precious metals surged between mid-2020 and April 2022, putting pressure on auto original equipment manufacturers (OEMs).
However, there has been a moderation in metal prices, and further rise in prices is possible, but its intensity is unlikely to be as high as the previous surge.
EBITDA margins for most covered auto OEMs expanded by 1-4 percentage points in FY24, and margins are expected to improve by an additional 40-210 basis points (bp) during FY24-27, driven by improving demand, stable input costs, and operating leverage.
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First Publication Date: 07 September 2024, 17:30 PM IST