Amyn Pirani, head of India Auto at JPMorgan, said valuations for two-wheeler companies are fair at present given that the segment grew slowly post-COVID, resulting in lower valuations compared to other sub-sectors.
However, over a longer period (5, 10 or 15 years), the growth of two-wheelers has been similar or even better than that of passenger vehicles.
He added that within the automotive sector, companies that gain market share tend to see their valuations re-rated, while those that lose share face a devaluation, putting the two-wheeler space in a favourable position now.
In contrast, the commercial vehicle sector has reached pre-COVID-19 levels but is experiencing a stagnation. Nevertheless, Pirani anticipates a positive turnaround as the market enters the third and fourth quarters.
He added: “We must also remember that in commercial vehiclesOEMs have also decided to reduce discounts and focus on sustainable and profitable growth, so volume growth must be seen in that context.”
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As for the passenger vehicle and four-wheeler market, Pirani noted that demand remains robust, although the sector is currently 20-25% above pre-COVID-19 levels. He noted a moderation in growth rates, with year-to-date trends indicating low- to mid-single-digit increases.
The festive season has started well and strong growth is expected in October and possibly in the first half of November compared to last year.
But, Pirani said, the growth rates we’ve seen over the past two to three years need to moderate and some other categories within the auto sector could even outperform them.
The second quarter has been relatively stable in terms of raw material prices, which are expected to remain favourable for the rest of the year.
This stability could lead to better margins for automakers in the next fiscal year.
Pirani also addressed the situation in the tyre industry, noting a slight moderation in raw material prices since their peaks.
While price increases are occurring, they have not yet been fully accompanied by cost reductions.
He predicted that the September quarter could face pressure, but with stable raw material prices in subsequent quarters, there could be a recovery in margins for tyre companies.
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