Two-wheeler makers see first-time & rural buyers come back in FY25

  • Key Indian two-wheeler original equipment manufacturers (OEMs), including Hero MotoCorp and TVS Motor Company, anticipate a significant upturn supported by favourable monsoon forecasts

Alisha Sachdev
First Published8 May 2024
Hero MotoCorp and TVS Motor Company both showcased strong financial performances in the fourth quarter of FY24.
Hero MotoCorp and TVS Motor Company both showcased strong financial performances in the fourth quarter of FY24.(PTI)

New Delhi: Two-wheeler makers are counting on an influx of first-time buyers and a rise in rural demand to drive growth in fiscal year 2025, supported by forecasts of a normal monsoon and a pipeline of new product launches.

Key Indian two-wheeler original equipment manufacturers (OEMs), including Hero MotoCorp and TVS Motor Company, anticipate a significant upturn supported by favourable monsoon forecasts, a vibrant pipeline of new products, and government incentives supporting the electric vehicle (EV) segment.

Strong performance from Hero and TVS

On Wednesday, Hero MotoCorp and TVS Motor Company both showcased strong financial performances in the fourth quarter of FY24.

Hero MotoCorp reported revenues of 9,519 crore, slightly above Bloomberg’s estimate of 9,401 crore, with a net income of 1,016 crore against forecasts of 1,048 crore, and an Ebitda of 1,359 crore, surpassing expectations of 1,323 crore. Ebitda refers to earnings before interest, tax, depreciation and amortization.

TVS Motor Company, on the other hand, reported revenues of 8,169 crore for the quarter ended 31 March, exceeding the anticipated 7,975 crore, even though its net income of 485 crore fell below the expected 530 crore because of a fair valuation loss on some of its investments. Its Ebitda of 926 crore outdid the forecast of 883 crore.

Rise of first-time buyers

Niranjan Gupta, CEO of Hero MotoCorp, told analysts in a post-earnings conference call that the company was seeing a promising increase in first-time buyers, particularly in their entry-level motorcycle segment.

“(Consumer sentiment in) March was definitely positive. April was positive. The momentum is somewhat on even now. However, in May the marriage dates (which lead to greater demand for two-wheelers) are not there, but I think there is a bit of a jump in the first-time buyers. There is something happening in terms of consumer sentiment that people are prioritizing their personal mobility. Overall, therefore, we see it as positive momentum and it's quite broad based across the regions that we're seeing,” Gupta said.

“The rural market is slowly and steadily changing; I'm able to see some recovery happening,” said K.N. Radhakrishnan, CEO of TVS Motor Company. “I'm hoping that this year, even though we are all going through very, very high temperatures, severe heat waves, I'm expecting the monsoon to be normal. I think that will definitely help the rural (sales) to move much faster. So, in FY25, we are hoping to see better recovery from rural, unlike what we have seen in the last year.”

Electric two-wheelers drive optimism

The two-wheeler makers said they are also optimistic about the growth in the electric two-wheeler segment despite the reduction in consumer demand-related subsidies offered by the government, expecting to counterbalance this with benefits from the production-linked incentive (PLI) scheme for the auto sector.

While the current lineup of Vida EVs from Hero MotoCorp is not PLI ready, upcoming products expected in the first half of the year, or by the second quarter of FY25, will meet these criteria, marking a significant overhaul in Hero MotoCorp's EV portfolio and also making it eligible to receive PLI benefits, the company said.

“This quarter, the impact of spend on EV business on our margin was 130 basis points, reducing the overall Ebitda margin to 14%. Going forward, we will focus on volume growth, enhancing our premium portfolio, and double-digit growth in the parts business, alongside intensifying cost-saving measures across the value chain,” Gupta said. One basis point is one-hundredth of a percentage point.

TVS Motor Company, on the other hand, said while it will expand its current iQube electric scooter range, it is also set to finally introduce an electric three-wheeler, despite currently lagging competitors like Bajaj Auto and Piaggio. “More options on the current iQube will be available very shortly. The new products, both in the IC-engine and EV segment, are in advanced stages and will definitely be introduced this financial year,” Radhakrishnan said, without explicitly stating which segments the products will address.

"Two-wheeler sales are expected to grow at a healthy rate of 8-9% in FY25. In the recent months, retail demand too has been encouraging. Margin performance of both Hero MotoCorp, TVS, and earlier Bajaj Auto, was healthy and inline to marginally above our and street estimates. The underlying ICE margins for two-wheeler players continue to remain strong, while there are headwinds in short-term EV margins but are eventually expected to improve with scale and cost reductions,” Jay Kale, senior vice president, Elara Capital, said.

 

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