'Expect 12-15% growth in 2-wheelers'

Bullish on two-wheelers, financial services company India Infoline’s automobiles analyst Jatin Chawla tells Sunaina Vasudev how despite margin pressures, the segment will post healthy growth.

What is your demand growth outlook for the sector?
We expect a healthy 12-15 per cent growth in two-wheelers for the next three-five years. If you look at our per capita GDP of around $1,200, it is almost the same as the price of a motorcycle, and this tends to be an inflection point for vehicle sales. I am very positive on growth in rural consumption of which motorcycles should be a key beneficiary.

Given the penetration levels in India (11 per 1,000 people) and the fact that income levels are going up, four-wheeler volumes will continue to grow at about 15 per cent. The CV (commercial vehicle) industry is a good barometer of the economy and with our GDP growth getting back on track, and with expectations of 8-9 per cent growth for the next few years, CV volumes should also grow about 12 per cent CAGR (compounded average growth rate) over the next few years.

What kind of margin impact do you envisage from inflation and higher input costs?
For four-wheelers and CVs, cost pressures from increase in commodity costs, especially steel, will hurt margins. Also, the increased competitive intensity in the space will make it difficult to pass on these cost increases. Higher commodity costs, especially of aluminium, will keep margins of two-wheeler companies under pressure in the quarters ahead.

The total impact on margins from inflation and higher input costs should be around 200-250 basis points across the sector.

Any stocks worthy of investment in the sector?
We are very bullish on the two-wheeler segment and in that we prefer Hero Honda and Bajaj Auto.