Two-wheelers race ahead in November, but sustainability key

However, post-festive season inventory corrections led to a 14-16% month-on-month volume decline for major players like Bajaj Auto, Hero MotoCorp, and TVS Motor.

Royal Enfield, on the other hand, saw a milder drop of 5%. The trend towards premiumization may have worked in favour of the company. This might explain the 8% rise in Eicher Motors' stock on Monday.

Currently, shares of two-wheeler companies are hovering near their 52-week highs. But, the moot question remains whether this demand recovery is sustainable.

Hero Moto's domestic volume in November at 476,286 units was still nearly 6% lower than pre-covid levels, indicating a need for stronger rural market recovery as it mainly operates in the mass segment. Bajaj Auto's positive post-festive season demand commentary offers some relief.

However, the two-wheeler export segment faces challenges, including currency availability and macro economic headwinds. Bajaj Auto, reported a year-on-year decline in export volumes for the third consecutive month. This segment is particularly crucial for the company as exports form a significant portion of its volumes.

Despite these challenges, the two-wheeler industry is expected to outperform other automotive segments. “We are already witnessing a reversal in demand patterns, especially in the two-wheeler segment, wherein we anticipate better growth potential compared to other segments over FY23-25E," said analysts at Motilal Oswal Financial Services in a report on 1 December.

The broking firm prefers two-wheelers within the sector, followed by commercial vehicles (CV). They turned cautious regarding the passenger vehicle (PV) segment amid a slowdown in demand, and a high base effect. The sport utility vehicle segment remains on a strong footing, lower-end models are weighing on the overall PV segment.

“With dealers carrying stock of up to 40 days (for mass segments) going into the year-end, and waiting periods coming off, some original equipment manufacturers will need to take production cuts in December 2023 (possibly the first time since covid) and also launch more attractive year-end offers than during the past three years," Nomura Financial Advisory and Securities (India) said in a report on 3 December.

Maruti Suzuki India Ltd derives a significant portion of its volumes from the mass segment. A strong uptick in its utility vehicle volume was offset by a drop in small car segments leading to a mere 3% year-on-year growth in November wholesale volume. The automaker's plan to increase prices in January may boost the December volume as consumers tend to advance their purchases.

Commercial vehicle (CV) volumes in November were disappointing, with companies like Tata Motors and Ashok Leyland reporting a 3.5% year-on-year decline each, likely due to weak demand in states following assembly elections. Demand conditions need closer tracking ahead of upcoming general elections.

Meanwhile, the tractor segment saw healthy growth, with companies like Mahindra & Mahindra and Escorts Kubota clocking volume growth. Demand recovery is expected to continue, helped by government support.

Besides two-wheelers, most automakers' shares are reflecting market optimism. Consistent volume growth and improved margin may ensure a smooth ride for investors going ahead.