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Two-wheeler export sales give hopes of growth revival post the pandemic

The need for mobility following the lifting of the lockdown may continue to drive demand across geographies

The rise in export sales comes as relief for two-wheeler manufacturers. Stocks of TVS Motors Ltd and Bajaj Auto Ltd clocked gains of 2.6% and 4%, respectively, as exports increased in September because of an order backlog. Bajaj Auto’s two-wheeler exports increased 16% year-on-year (y-o-y), while that of TVS Motors jumped 24% y-o-y after the lockdown was imposed following the coronavirus outbreak.

To an extent, the double-digit sales growth is because of inventory restocking following the gradual lifting of the lockdown. This improvement in sales is likely to persist in the coming year.

“Sales is building up. We don’t see a decline from here on for the rest of the fiscal. The base is also quite low for exports and domestic markets, so we are building a single-digit growth for the rest of the fiscal," said Hitesh Goel, director, research (automobiles and components), Kotak Institutional Equities.

Rising exports
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Rising exports

The need for mobility following the lifting of the lockdown may continue to drive the demand for two-wheelers across geographies. “There is a move towards personal mobility in view of the pandemic and that is raising demand in some unconventional markets," said Aditya Jhawar, auto analyst, Investec Securities.

The presence of Indian two-wheeler manufacturers in global markets is rising. Latin America, South Asia, Africa and Europe are some of the regions where market share gains have been decent.

“Over the past 10 years, global two-wheeler market volumes (excluding India and China) have grown at an annual rate of 2%. However, two-wheeler exports from India have grown at a compound annual growth rate of 12% during the same period, implying market share gains for Indian two-wheeler original equipment manufacturers," pointed out Goel.

The drive towards premium motorbike sales could also see an improvement in margins. Export margins for domestic firms are in their mid-teens.

This year’s export growth could be disrupted because of the pandemic. Exports contracted by about 33% for Bajaj Auto. Analysts, however, said that the rest of the year could see supplies normalize in the export market.

Meanwhile, conditions in the domestic market are perking up, raising the hope of a better festive season. Inventory at the dealers has increased to 30-45 days from lower levels earlier, said analysts. Demand from urban centres, though, is not as high as rural demand.

Stock prices of two-wheeler companies have increased close to pre-covid levels, reflecting the improvement in the business environment. The share price of TVS Motors is just about 2% away from its pre-covid highs, while Bajaj Auto is about 9% away. Hero MotoCorp gained 29% in 2020 on the back of rural demand.

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