The Nifty Auto index has performed robustly in 2024 so far. The index has risen over 34 percent this year as against a 9.8 percent gain in benchmark Nifty. In the last one month as well, it has added 4.75 percent versus a 3.8 percent jump in Nifty.
After a tighter-than-expected election race, analysts suggest that the new NDA government may focus on rural spending over capital expenditure to enhance rural demand. Favorable monsoon forecasts further support the anticipated recovery in the rural market. This increased disposable income for rural consumers is expected to boost demand in the automobile sector, particularly for two-wheelers.
Year-to-date (YTD) growth for two-wheelers has been strong, driven by improved consumer sentiment, successful price hikes, new model launches, and a gradual revival of rural markets. Despite challenges from the Red Sea crisis, two-wheeler exports saw significant year-over-year (YoY) growth. The temporary slowdown in the two-wheeler sector during May was due to the Lok Sabha Elections 2024, but growth is expected to resume in June.
Between the two, Bajaj Auto is the better performer this year. Bajaj has gained over 39 percent this year so far while TVS has added over 17 percent in this period.
This year so far, TVS has given positive returns in 4 of the 6 months while Bajaj has been positive in 5. TVS jumped 9 percent in June after rising 5.7 percent in May. However, it fell 4.2 percent in April. Prior to that, it rose 0.6 percent and 7 percent in March and February, respectively. In January, the stock shed 1.4 percent.
Bajaj, on the other hand, gained over 4 percent in June following a 2.2 percent rise in May. Before that, it fell 2.7 percent in April. However, it was positive in the first 3 months of 2024, rising 15.6 percent in March, 3.3 percent in February and 12.5 percent in January.
Meanwhile, in the last 1 year as well, Bajaj has given better and multibagger returns. It has surged 105 percent versus an 82 percent rise in TVS.
Despite the volatility, both TVS and Bajaj hit their record highs this month. Bajaj hit its new high of ₹10,037.30 on June 18, 2024. Currently trading at ₹9,480.05, the scrip is just 5.5 percent away from its peak. It has surged around 109 percent from its 52-week low of ₹4,544.00, hit on August 14, 2023.
Similarly, TVS also touched its record high of ₹2,524.95 on June 18, 2024. Currently trading at ₹2,385, it is also 5.5 percent away from that peak. However, it has jumped 85 percent from its 52-week low of ₹1,289, hit on June 27, 2023.
In the long term, 3 years, TVS has emerged as the winner. It has soared over 281 percent while Bajaj has rallied 125 percent.
Two-wheeler maker TVS Motor Company reported a standalone net profit of ₹485 crore for the quarter ended March 31, 2024, marking an 18 percent increase from ₹410 crore in the same period last year. Revenue from operations reached ₹8,169 crore, up nearly 24 percent from ₹6,605 crore in the corresponding quarter of the previous financial year. TVS Motor recorded its highest-ever revenue and profit in FY2023-24, with sales surpassing 40 lakh units. Operating EBITDA for the quarter rose to 11 percent, compared to 10 percent in the fourth quarter of the previous year.
On the other hand, Bajaj Auto reported a 35 percent year-on-year (YoY) increase in net profit, reaching ₹1,936 crore for the March quarter, up from ₹1,433 crore in the same quarter last year. Revenue from operations grew 29 percent YoY to ₹11,485 crore, compared to ₹8,905 crore in the previous year. EBITDA for the quarter was ₹2,307 crore, a 34 percent rise from ₹1,718 crore in the same period last year. The revenue growth was driven by a strong domestic business and steady exports, despite challenges in international markets. However, sequentially, revenue and PAT were down by 5 percent.
In the two-wheeler OEM market, TVS Motor holds approximately 17% market share, while Bajaj Auto holds around 12% in terms of the number of vehicles sold. Despite the latter being the leader among three-wheeler OEMs, this market is relatively small. Comparing the price increase from COVID-19 bottom levels, Bajaj Auto’s share price has increased around 5x, whereas TVS Motor’s share price has increased around 10x, which outweighs the higher dividend yield of the former.
Over the past 3 years, sales growth (TVS Motor - 26.3% and Bajaj Auto - 17.4%), profit growth (TVS Motor - 41.0% and Bajaj Auto - 16.7%), and average return on equity (TVS Motor - 24.4% and Bajaj Auto - 21.9%) favor TVS Motor. Although, P/E multiple-wise, TVS Motor (68.4) looks too pricey compared to Bajaj Auto (35.1), the former has historically commanded a higher multiple given its growth prospects. Therefore, TVS Motor is a faster-growing company than Bajaj Auto and should be preferred for long-term investment.
This is because:
1) Better presence in scooters. Scooter penetration to increase in India ahead.
2) More aggression towards EVs driven by partnerships – BMW and e-bike ventures in Europe.
3) Exports growth to be higher for TVS – new market expansions
4) Higher scope on EBITDA margin improvement towards 15% margin vs Bajaj already over 20% margin.
Both TVS Motor and Bajaj Auto are among the country's leading listed auto OEMs, making the choice between them a complex and nuanced investing decision. Our quantitative models provide some clarity by comparing various factors.
When evaluating Momentum and Quality, both stocks are strong contenders, ranking in the top quintile of our investment universe. They also offer stability, as indicated by their Low Volatility scores.
However, the distinction becomes clearer when considering other aspects. On the Value front, Bajaj Auto is relatively more attractively priced than TVS Motor despite its significant outperformance in the past year. This suggests that Bajaj Auto might offer better value for long-term investors.
The Sentiment factor further strengthens Bajaj Auto's position, with approximately 84% of the market having a positive outlook on its stock and business performance. In comparison, 54% of the market views TVS Motor positively. While this is still favorable, it is overshadowed by the strong sentiment backing Bajaj Auto.
In summary, from a comprehensive perspective, Bajaj Auto appears to be a slightly better choice than TVS Motor, driven by its advantages in Value and Sentiment factors.
Bajaj Auto's strategic focus on premium motorcycles, EVs, and CNG models, along with a gradual recovery in exports, provides strong operational levers to maintain margins. Given its innovative product pipeline and market expansion strategies, Bajaj remains a solid long-term investment with high cash reserves.
On the other hand, we like TVS because of its engineering and R&D capabilities, strong domestic retail network, export recovery and increasing sales volumes from premium offerings in developed countries (we estimate Norton business to be able to generate revenues by FY26-27).
We believe both Bajaj Auto Ltd and TVS Motor Co Ltd present compelling long-term investment opportunities. Bajaj's innovative product pipeline, strategic market expansion, and TVS's market leadership and strong EV strategy underscore their potential for sustained growth. Investors looking for robust returns in the evolving 2W industry should consider adding these stocks to their portfolios. We recommend a BUY on Dips strategy after the recent rally in these stocks.
TVS Motor and Bajaj Auto both look promising in the long term. Bajaj offers financial strength and diversification, while TVS shows growth potential and EV focus. Investors could consider both based on risk appetite and portfolio goals.
In summary, TVS Motor and Bajaj Auto both present strong long-term investment opportunities. While TVS Motor is favored for its higher growth prospects and aggressive EV strategy, Bajaj Auto offers value and positive market sentiment. Investors are encouraged to consider their risk appetite and portfolio goals when choosing between these two leading auto stocks.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
