Hero Motocorp, Bajaj Auto & TVS Motors are three of the Top-4 two-wheeler manufacturers in India. {HMSI (Honda), which is now the No.2 manufacturer, isn't a listed entity and hence isn't part of this comparison.} Hero Motocorp has long been the king of Indian motorcycle market. But after it's break-up with Honda, it's dominance in the Motorcycle segment has reduced to some extent, but at the same time it is fighting back with increasing sales of it's newer Scooter models. Bajaj Auto has had mixed fortunes as well over the last few years. Until middle of 2015, Bajaj Auto was the export champion with it's export volumes almost equaling or sometimes even exceeding it's domestic volumes. But over the last year or more, there have been some disturbances in some of it's key export markets, leading to a substantial de-growth of it's monthly export volumes. This has forced the company to focus more on the domestic market to maintain overall volumes. TVS Motors was primarily famous for it's Mopeds previously. But over the last couple of decades, the company has progressed to become a full-fledged two-wheeler maker, first riding with Suzuki's collaboration and then developing it's own R&D division. Nearly 65-70% of TVS Motors' monthly volumes now comes from it's portfolio of Scooters & Motorcycles, with the balance contribution from Mopeds and 3-wheelers. In fact TVS Motors and Bajaj Auto are now fighting each other to claim the No.3 Rank in the Indian 2-wheeler market.
Coming to comparing the financials of the 3 companies, I have considered the Trailing-Twelve-Months numbers for the October to September period for the last 3 years. Let's first start with comparing the Total Income numbers:
Hero Motocorp sells on an average about 6 lakh units every month, while Bajaj Auto sells about 3 to 3.3 lakh units and TVS Motors sells about 2.2 to 2.4 lakh units. While Hero Motocorp's & TVS Motors' T-T-M Total Income figures are in line with the proportion of their monthly sales volumes, Bajaj Auto certainly has been doing better than it's monthly sales volumes. The 2 primary reasons for this outperformance are: higher proportion of 150cc & above bikes in it's sales and over 10% of it's volumes coming from 3-wheelers, which leads to higher average realisation per unit for Bajaj Auto. Hence Bajaj Auto's Total Income is about 23% lower than Hero Motocorp, despite selling about 45% less number of vehicles.
Coming to the growth posted by the 3 companies over the last 2 years, TVS Motors has been the fastest growing with 38% increase in Total Income during Oct-Sept'16 compared to Oct-Sept'14 number. During the same period Hero Motocorp has grown by 16% and Bajaj Auto at just 13%. As we can see, most of this growth by Hero Motocorp has come in the latest 12 months, when it's Scooter sales have been posting strong growth. Hero Motocorp has been launching newer products developed by it's own R&D unit. Most of them seem to be doing well, helping the company maintain & grow it's overall sales volume.
Bajaj Auto too has found decent success with it's recent launches in the 150+cc cruiser segment and is now readying to enter the 250+cc segment on it's own with Dominar series of bikes. TVS Motors continues to do well in Scooters, Motorcycles as well as Mopeds segment, all of which have helped the company post the fastest growth amongst the three players here.
Take a look at the EBITDA progress chart alongside. It becomes obvious as to who makes the most margin per rupee of turnover. Despite having Total Income 23% lower than Hero Motorcorp in the latest 12-months period, Bajaj Auto still makes about 8% higher EBITDA. Hero Motocorp has done some excellent catch-up here with near 29% increase compared to it's EBITDA numbers for last year or year before that, compared to Bajaj Auto's 20% EBITDA growth over the last 2 years. The way Hero Motocorp's EBITDA has jumped in the latest 12-months period, it suggests that parting with Honda & launching it's self-developed models has clearly helped boost margins. TVS Motors again has managed to post the fastest growth of about 64% over the last 2 years, but in absolute terms it's EBITDA number is less than one-fifth of EBITDA numbers of either of the other 2 players. That leaves a huge scope for improvement in margins for TVS Motors, but that will need increased contribution from higher cc models.
The picture on the Net Profit front is quite similar to the EBITDA chart. Bajaj Auto's Net Profit is about 17% higher than Hero Motocorp's number in the latest 12-months period. While the latter has posted a growth of 46% in 2 years, the former has posted a decent growth of 38%. TVS Motors again has posted the fastest growth in Net Profit here with 82% increase over the last 2 years, but in absolute terms it is still a small fraction of the numbers posted by the other 2 companies. Over the last 2 years, Hero Motocorp has managed to improve it's Net Profit margin from 8.6% to 10.9% (230 bps improvement), while Bajaj Auto's margin has improved from 13.6% to 16.6% (300 bps improvement). On the other hand, TVS Motors' margin has increased by just 100 bps from 3.1% to 4.1%.
Coming to valuations, at the current Market Cap levels, TVS Motors trades at 31 times it's Earnings, while the multiples for Bajaj Auto & Hero Motocorp are 18 and 17 times respectively. The higher P/E multiple commanded by TVS Motors clearly reflects that the market expects the company to continue outperforming the other 2 players in terms of growth in Profits by a substantial margin. I will update with the status on the same a few quarters later.
Coming to comparing the financials of the 3 companies, I have considered the Trailing-Twelve-Months numbers for the October to September period for the last 3 years. Let's first start with comparing the Total Income numbers:
Coming to the growth posted by the 3 companies over the last 2 years, TVS Motors has been the fastest growing with 38% increase in Total Income during Oct-Sept'16 compared to Oct-Sept'14 number. During the same period Hero Motocorp has grown by 16% and Bajaj Auto at just 13%. As we can see, most of this growth by Hero Motocorp has come in the latest 12 months, when it's Scooter sales have been posting strong growth. Hero Motocorp has been launching newer products developed by it's own R&D unit. Most of them seem to be doing well, helping the company maintain & grow it's overall sales volume.
Take a look at the EBITDA progress chart alongside. It becomes obvious as to who makes the most margin per rupee of turnover. Despite having Total Income 23% lower than Hero Motorcorp in the latest 12-months period, Bajaj Auto still makes about 8% higher EBITDA. Hero Motocorp has done some excellent catch-up here with near 29% increase compared to it's EBITDA numbers for last year or year before that, compared to Bajaj Auto's 20% EBITDA growth over the last 2 years. The way Hero Motocorp's EBITDA has jumped in the latest 12-months period, it suggests that parting with Honda & launching it's self-developed models has clearly helped boost margins. TVS Motors again has managed to post the fastest growth of about 64% over the last 2 years, but in absolute terms it's EBITDA number is less than one-fifth of EBITDA numbers of either of the other 2 players. That leaves a huge scope for improvement in margins for TVS Motors, but that will need increased contribution from higher cc models.
The picture on the Net Profit front is quite similar to the EBITDA chart. Bajaj Auto's Net Profit is about 17% higher than Hero Motocorp's number in the latest 12-months period. While the latter has posted a growth of 46% in 2 years, the former has posted a decent growth of 38%. TVS Motors again has posted the fastest growth in Net Profit here with 82% increase over the last 2 years, but in absolute terms it is still a small fraction of the numbers posted by the other 2 companies. Over the last 2 years, Hero Motocorp has managed to improve it's Net Profit margin from 8.6% to 10.9% (230 bps improvement), while Bajaj Auto's margin has improved from 13.6% to 16.6% (300 bps improvement). On the other hand, TVS Motors' margin has increased by just 100 bps from 3.1% to 4.1%.
Coming to valuations, at the current Market Cap levels, TVS Motors trades at 31 times it's Earnings, while the multiples for Bajaj Auto & Hero Motocorp are 18 and 17 times respectively. The higher P/E multiple commanded by TVS Motors clearly reflects that the market expects the company to continue outperforming the other 2 players in terms of growth in Profits by a substantial margin. I will update with the status on the same a few quarters later.
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