India’s Two-Wheeler and Tractor Markets Set for Strong Growth: Jefferies Report
India’s domestic auto sector is poised for significant growth, especially in the two-wheeler (2W) and tractor segments, according to a report by Jefferies. Over the fiscal years 2024 to 2027, these segments are expected to outpace the broader industry with compound annual growth rates (CAGR) of 14% and 10%, respectively.
Two-Wheeler Market Rebound
India’s two-wheeler demand, which had lagged behind passenger vehicles during FY21-23 due to the COVID-19 pandemic and rising regulatory costs, is now experiencing a resurgence. In FY24, two-wheeler wholesales grew 14% year-on-year (YoY), outperforming the 8% growth seen in passenger vehicles (PVs). Despite this rebound, FY24 volumes for two-wheelers are still 13% lower than their FY19 peaks, while PV volumes are 25% higher. Looking ahead, two-wheelers are projected to deliver an industry-leading 14% CAGR over FY24-27.
Tractor Market Growth
Tractors are another bright spot in the auto sector, with the industry expected to enter a strong cyclical recovery. Tractor volumes are anticipated to grow by 6% in FY25, followed by a 12% CAGR in FY26-27, supported by strong rural demand and favorable agricultural conditions.
Electric Vehicle (EV) Market
The electric vehicle revolution is gradually making its way into the Indian two-wheeler market. EVs’ share in two-wheeler sales rose from just 0.4% in FY21 to 5% by the first quarter of CY23. While government subsidies and new launches have driven this growth, recent reductions in incentives for electric two-wheelers (E2Ws) have slowed momentum. However, the EV market is expected to grow steadily, with the share of EVs in two-wheeler sales projected to reach 7% in FY25, 10% in FY26, and 13% in FY27. In the passenger vehicle segment, EV adoption has been slower, with EVs accounting for only around 2% of total sales.
Improving Margins
The auto sector faced margin pressure over FY21-23 due to weak demand and a sharp rise in metal prices. However, metal prices have since moderated. EBITDA margins for most covered auto original equipment manufacturers (OEMs) expanded by 1-4 percentage points YoY in FY24, and margins are expected to improve by an additional 40-210 basis points over FY24-27, driven by recovering demand, stable input costs, and operating leverage.
Doubts Revealed
Jefferies -: Jefferies is a global investment bank that provides financial advice and services. They analyze markets and companies to help investors make decisions.
FY24-27 -: FY24-27 refers to the financial years from 2024 to 2027. A financial year is a one-year period that companies and governments use for accounting and budgeting.
Compound annual growth rates -: Compound annual growth rates (CAGR) show how much something grows each year over a period of time, taking into account the effect of compounding. It’s like saying how much your pocket money increases every year if it grows at a steady rate.
Two-wheeler -: A two-wheeler is a vehicle with two wheels, like a motorcycle or a scooter. They are very common in India for personal transportation.
Tractor -: A tractor is a powerful vehicle used mainly in farming to pull heavy loads and machinery. They help farmers do their work more efficiently.
Electric vehicle (EV) -: An electric vehicle (EV) is a vehicle that runs on electricity instead of petrol or diesel. They are better for the environment because they don’t produce pollution.
Margins -: Margins refer to the difference between the cost to make something and the price it is sold for. Higher margins mean companies make more profit.
Input costs -: Input costs are the expenses companies have to pay to produce their products, like raw materials and labor. If these costs are stable, it means they are not changing much.
