HSBC expects India’s two-wheeler industry to clock high-single digits growth in FY26

New Delhi: Although the growth in India’s two-wheeler industry has moderated in recent months, it is still expected to grow in high-single digits in FY26, according to an HSBC Global Research report released on Wednesday.

The past 10-year CAGR (compound annual growth rate) for the industry is still less than 3 per cent and lower than most other auto segments. Electrification has been rather slow despite significant incentives by the government, the report stated.

“Positively, the rural segment is recovering and so is the export market. Overall, factoring in these moving parts we upgrade TVS to Buy from Hold and downgrade OLA to Hold from Buy. We retain our Buy rating on Bajaj. Valuations look relatively undemanding now after the recent correction and earnings downside limited post revisions in 3Q,” it added.

TVS arguably has the most established R&D capacity amongst the two-wheeler manufacturers. The company has been able to maintain its share in the domestic market and has gained decent traction in EVs as well. We see this as a positive back-drop for TVS in the medium term. Finally, TVS continues to gain traction in export markets as well. The stock has corrected by 25 per cent from the top and is now valued at 34x FY26e EPS. Admittedly, losses in subsidiaries like Norton remain a worry for us, but standalone margins have high visibility, thanks to PLI accruals from 4Q as well, the report said.

“At the industry level, ICE scooter share is stable at 31 per cent since FY21, while EV scooters have taken market share mostly from economy MCs (75-110cc) (exhibit 2), especially urban economy MC sales. This reduces the ICE scooter cannibalisation risks for TVS. Upgrade to Buy with TP of Rs 2,800.”

The report also states that since the IPO, OLA has consistently disappointed on volumes, largely led by quality and service issues. While the company has addressed the service issues and OLA is scheduled to launch an EV motorcycle soon, competition catch-up has also been aggressive. OLA’s market share is down to 23 per cent, from 1QFY25’s peak of 49 per cent. “With waning confidence in medium- to long-term estimates, we downgrade the stock to Hold from Buy. We cut our estimates; our TP is now INR70 (earlier INR100).”

HSBC has also retained its Buy rating on Bajaj given a diversified earnings profile and reasonable valuations post the recent stock correction. However, it has lowered its TP to Rs 10,500 from Rs 11,500 as the long-term growth rate has been reduced. Export volumes are gradually improving as well. The impending launch of e-rickshaw is an upside catalyst. The company lost market share in MCs in recent months (2024) on launches from competition in the 125cc category in particular. “We expect Bajaj’s MC market share to stabilise in 2025. Further loss of market share is a downside risk,” the report added.

–IANS