Best auto sector stock in India – Two Wheeler

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Best auto stock in India

Best auto sector stock in India – Two Wheeler

The Indian automotive market is the world’s largest market followed by China and is expected to grow at CAGR of 7.33% till 2024. With such a growth opportunity in mind, you may want to be a part of it and select the best automotive stock to build your wealth. In order to make the best choice, this article provides a comprehensive understanding of Indian automotive sector – two wheeler. You may check out the key facts & figures used to arrive at the best auto sector stock in India to invest in.

Global Auto Market – Two Wheelers

The global two wheeler market comprising of motorcycles, scooters & moped across the world is expected to grow to 62.6 million by 2025. Currently, India is the largest market with around 17.4 million units sold followed by China at 16.3 million.

The Indian market is expected to touch 26 million units while Chinese market is expected to grow to 22 million units by 2025.

European market is expected to add another 1 million unit by 2025 while Japan is expected to touch around 3.9 million units.

Read Economic times article on auto sector & PR Newswire report for more details.

Two Wheeler Market - Auto Stock

Indian Auto Market – Two Wheelers

The Indian two wheeler market is comprised of 12 major companies with 90% of the units sold by 4 major players – Hero, Honda, TVS & Bajaj in FY 2019-20.

Here is how you can compare the numbers –

S.No.CompanyFY 2019-20 Units Sold
(Lacs)
% share by units sold
1Hero62.3136%
2Honda47.0627%
3TVS24.1114%
4Bajaj20.7812%
5Suzuki6.854%
6Enfield6.574%
7Yamaha5.793%
8Piaggio0.620%
9Kawasaki0.020%
10Harley0.020%
11Mahindra0.010%
12Triumph0.010%
174.1 Lacs
Two Wheeler Market Share India

The market has slowed down since September 2018 with the BS-VI transition announcement, electrification of vehicle initiative and increased cost of vehicle insurance. However, the market is expected to recover by mid 2021. Further, COVID-19 outbreak has had a considerable impact on both the supply and demand during the lock-down period beginning March 2020.

Auto stocks for investment

Out of the 12 companies mentioned above, you would notice that not all are listed on the Indian stock exchange. Taking this into consideration, we have the following choices available for investments –

  1. Hero
  2. TVS Motors
  3. Bajaj Auto
  4. Eicher Motors – Enfield

Let us compare the performance of these companies over the last 5 years and understand the fundamentals.

Revenue Comparison

In order to compare these stocks, you should first look at the sales figures and the consistency of performance in terms of units sold. You would notice that in FY-20 revenue have fallen across the segment which would be further down in FY-21 due to the pandemic.

Traditionally, Hero has been the dominant player in terms of the units sold as well as revenue. In FY-20, Bajaj has been able to outperform Hero on the revenue front.

The figures mentioned in table below are in Rs 1000 Crore.

RevenueFY-14FY-15FY-16FY-17FY-18FY-19FY-20
HERO24282929323423
BAJAJ 20 2122 22253023
TVS81011 12151819
EICHER955710107

However, the fall has been much sharper for Heromotocorp while TVS motors have been able to slightly higher units in FY-21. TVS motor has almost doubled the units sold over the last 5 years. Eicher on the other hand, has been able to more than double the revenue from 4041 in FY-15 to 9794 in FY-19 followed by a considerable fall in FY-20.

Revenue comparison of auto stocks in India

Profit Comparison

If you look at the profit margins, Eicher Motors has the highest PAT% which stands at around 22%, followed by Bajaj Auto at 17% in FY-20.

Bajaj Auto, TVS and Eicher have been able to consistently increase profits from FY-14 to FY-19.

The figures mentioned in table below are in Rs 1000 Crore.

PAT FY-14FY-15FY-16FY-17FY-18FY-19FY-20PAT%
HERO223443313%
BAJAJ 334 445417%
TVS0.3.3.5.6.7.7.63%
EICHER0.7.91222222%

You should at the chart below for a visual representation –

Profit comparison of auto stocks in India

Let us also look the PAT% trend below –

FY-2014FY-2015FY-2016FY-2017FY-2018FY-2019FY-2020
HERO9%9%11%12%11%10%13%
BAJAJ16%13%17%18%16%16%17%
TVS3%3%4%5%4%4%3%
EICHER8%19%22%22%19%22%22%

From the table above, should notice that TVS operates on really thin margins, while others have been able to cushion with higher PAT%. Bajaj Auto has been quite consistent with their PAT% along with Eicher Motors. On the other hand, Hero has been able to command better profit margins in FY-20 while the sales has gone down considerably. Probably, they have tried to increase prices or focus on premium segment off late.

Margin comparison of auto stocks in India

Price Trend

We have looked at two key aspects of a business : Top-line and Bottom-line. Now let us also compare how market has rated these companies over the past 7 years in terms of the prices.

TVS has become 3.43 times, Eicher Motors 2.69 times, Bajaj Auto 1.25 time & Hero 1.02 times.

Price comparison of auto stocks

Comparison of key ratios

Here we look at some of the key ratios which would also constribute towards figuring out the best auto sector stock in India from two wheeler market.

Return on Equity, Debt Equity Ratio & Price to Earnings Ratio

The ROE comparison for each of the above 4 stocks is as follows –

CompanyROEDebt Equity RatioPE Ratio
Hero33%0.0213
Bajaj25%0.0115
TVS24%2.8227
Eicher32%0.0219

Hero is providing the best returns to its shareholders followed by Eicher Motors. TVS has considerably higher debt on this books and this is impacting the PAT%. Further Hero & Bajaj are inexpensive among these 4 as suggested by the PE Ratio.

Selecting the best auto sector stock in India – Two Wheeler

In order to arrive at the best stock from the details above, we have assigned score to all three sections – Revenue, Profits & Ratios.

This is how we have rated the scores on the attributes mentioned above out of 10 each – (this considers revenue and profit variation during the duration)

Rev ScoreProfit ScoreRatio ScorePAT% ScoreTotal Score
HERO881088.4
BAJAJ771098.0
TVS109768.3
EICHER6910108.5

Overall scores are computed on the basis of assigning 30%, 30%, 20%, 20% weight-ages respectively to Rev, Profit, Ratio & PAT% Scores.

Based on this we see that Eicher Motors is the best two wheeler auto stock in India currently.

TVS motors has been consistent in performance but there is a risk from high debt component which is if utilized well can result in TVS outperforming others.

Disclaimer – The view and analysis presented here is based on independent estimates and assumption by Fintox. The reader must rely on self – judgement for making an investment decision.

Footnotes

If you want to check about a sample fundamental analysis of a stock click here – Multibase India – Fundamental Analysis.

In case you are planning to invest in stocks you may check our section on stock market for details. To know about new age investments like P2P lending visit details on p2p lending and investments.

To know more about the economy and investment options like equity, mutual funds, debt – check our post on “How to start investing“and “A Wealth Snapshot of India

Stay tuned for further updates.

To read about mutual fund investments, you may check our post on Mutual Funds in India.

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