1. Hero MotoCorp
continues to consolidate its leadership position as the world’s largest two wheeler manufacturer for 18 years consecutively. The company has a high presence in rural India and has been a market leader in the entry and deluxe segment of motorcycles. It has expanded its product portfolio with entry into scooter, premium motorcycle segments and Electric Vehicle segment through strategic investment in electric two-wheeler manufacturer ‘Ather Energy’. With a focus on customer experience, expansion of distribution network & institutional sales, investment in brand building activities and ramp up of Research & Development it has been able to achieve great scale.
Hero Motocorp has consistently delivered superior return ratios with ROCE of over 27% and has a strong balance sheet with negligible debt and strong free cash flows. Looking at the negatives for the company, it is highly domestic dependent. Although it’s present in over 37 countries only 4% of its sales accrue from exports. In order to expand sales further it will have to increase this exposure. The company has had lower sales growth in the past among its peers and is facing high competition, but Hero was the least impacted from the COVID-19 pandemic due to its high rural presence. Rural India has been less affected by the virus than urban areas. It has recovered the fastest with positive growth in farming and agriculture segments supported by good monsoon and strong Rabi crop.
2. Bajaj Auto is another two-wheeler company that has proven itself over the years. What differentiates Bajaj Auto from other two-wheeler makers in India is its relentless focus on markets outside of India. Its growth and presence in the international markets have been on the back of its own brands as well as its alliance with KTM. This has enabled it to de-risk by not being over reliant on any one geography or product. It is by far India’s largest motorcycle and three-wheeler exporter. The company’s revenue share from exports has increased from 28.2% in FY10 to 42% in FY20.
It’s revenue has grown at a CAGR of 10% over FY10-FY20 whereas profit after tax has grown at a CAGR of 12% over the same period. It also continues to dominate the three wheeler segment and remains the market leader. On the other hand, Bajaj has a poor presence in the scooter market. Bajaj Auto was the leader in the scooter market till the motorcycle momentum picked up in the 1990s. Bajaj shut down its scooter business post that, but the scooter business is booming once again and it could be an avenue the company can re-explore to improve its product portfolio.
3. Eicher Motors owner of iconic Royal Enfield leads the premium motorcycle segment in India. Royal Enfield has captured nearly 95% of the 250cc plus premium segment category. It enjoys a virtual monopoly in this segment without any intentions of entering the other segments. One of the main reasons for the strong brand name – Royal Enfield is due to its high-quality standards. Royal Enfield emphasizes on providing best quality to its customers. The company also has a joint venture with the Volvo group, VE Commercial Vehicles Limited which designs, manufactures and markets reliable, fuel-efficient trucks and buses.
Eicher Motors has been the fastest growing two wheeler company with sales growing at CAGR of 19% over FY10-FY20 whereas profit after tax has grown at a CAGR of 47% over the same period. Since Eicher Motors caters to the premium category, any economic downturn will affect the company the most. Also the threat of competition is increasing, with the advent of players like BMW, Triumph, Husqvarna, Honda, Norton, Benelli and UM in this space.
4. Maruti Suzuki set up as a joint venture between Maruti and Suzuki is India’s largest car maker selling more than half of the cars on road. It has created unmatched brand equity over the years. The company has a strong product portfolio with models in every segment. It focuses on continuous process improvement, effective cost control measures and flexible manufacturing processes.
The company possesses a healthy balance sheet with 0 debt due to its strong cash generating ability and RoIC placed at a healthy 28%. However The Indian PV market remains highly competitive, with existing and new players launching new models regularly, especially in the compact and mid-size segment. The number of players in this segment increased to 19 in fiscal 2020 from 7 in fiscal 2008. With more players and models vying for a share of the growing pie, competition in the domestic car market may intensify, resulting in price competition and lower realisations. The economic recovery from COVID-19 pandemic and improving income levels are likely to keep the demand strong in the medium term. Maruti’s strong distribution network and rural penetration will aid stronger growth.
5. MRF
is ranked India’s number 1 manufacturer and is among the worlds’ top 20 Tyre Manufacturers. It is also India’s largest Original Equipment Manufacturer (OEM) tyre supplier with an expansive tyre range from two-wheelers to fighter aircrafts. MRF is recognized for its drive towards continuous quality improvement and customer satisfaction. MRF was the first company to export tyres from India and still has a strong holding in the exports market across 65 countries. It has a complete product portfolio with tyres for all types-heavy duty vehicles, SUVs, small & luxury cars, two & three wheelers, conveyor belts, paints & coats and pretread.
It also has a strong financial position with a solid past record. Over two-thirds of MRF’s revenue comes from replacements. Higher share from this segment helps the company insulate from the cyclicality. However the company is still exposed to cyclicality in its raw material prices–Natural Rubber and other crude derivative products. Given the high competition, the ability to pass on RM price hikes in a timely manner is a challenge for all players. Further, MRF’s performance is dependent on the automotive demand, which exhibits cyclicality in most of the segment.