Jefferies has made significant adjustments to its ratings for key players in India’s two-wheeler industry, downgrading Hero MotoCorp Ltd. to ‘underperform’ and Bajaj Auto Ltd. to ‘hold’. This shift comes as the sector faces declining sales volumes and a challenging market environment. Conversely, Jefferies maintains a ‘buy’ recommendation for TVS Motor Co. Ltd. and Eicher Motors Ltd., attributing their optimistic outlook to impressive market share increases and strong earning capabilities.

Challenges in the Two-Wheeler Sector

Despite a recovery phase following the COVID-19 pandemic, the two-wheeler market is now experiencing renewed demand pressures. Jefferies has highlighted several critical factors contributing to this downturn:

• Low retail registrations: Indicative of shrinking consumer interest.
• High inventory levels: Suggesting overproduction.
• Weak dealer inquiries: Reflecting a lack of confidence in sales growth.

Additionally, anticipated boosts from income tax reductions and wage increases in public sector units might not be enough to counter these challenges. Jefferies has revised its growth projections for the industry, cutting estimates for fiscal years 2026 and 2027 by 6% and 2%, respectively. The firm now forecasts an 8-11% growth rate, resulting in a 10% compound annual growth rate (CAGR) through fiscal 2028.

Hero MotoCorp and Bajaj Auto: Market Share Declines

Jefferies adjusted its earnings forecasts for Hero MotoCorp, reducing estimates for fiscal 2026-27 by 8-11%, while Bajaj Auto’s estimates were lowered by 5-7%. Notably, Hero MotoCorp’s domestic market share has plummeted to a 20-year low of 28% in fiscal 2025. Meanwhile, Bajaj Auto has seen its share of two-wheeler exports decline from 62% in fiscal 2015 to 40% in fiscal 2025.

Ola Electric Mobility is also struggling, with its market share in the electric two-wheeler segment dropping drastically from 49% in Q1 of fiscal 2025 to just 19% by Q4.

TVS Motor and Eicher Motors: Rising Stars

In contrast to their competitors, TVS Motor has reached an impressive 18% domestic market share, marking its highest level in 18 years. Jefferies predicts that TVS will boast the strongest earnings per share (EPS) CAGR of 28% from fiscal 2025 to 2028, with only minor cuts of 2-3% to its fiscal 2026-27 earnings forecasts due to production-linked incentives.

Eicher Motors remains a strong contender in the premium motorcycle segment, holding onto 30% of the market share in the 125cc+ category. Jefferies forecasts a 14% EPS CAGR for Eicher from fiscal 2025 to 2028, solidifying its position as a preferred investment choice.

Future Outlook: Modest Growth Ahead

Although Jefferies has lowered its volume growth expectations for the two-wheeler sector for fiscal 2026 and 2027, it still anticipates a 10% CAGR through fiscal 2028. The report indicates that factors such as affordability issues and a slow transition to electric vehicles are likely to hinder growth.

The adoption of electric two-wheelers currently stands at 5-6%, and despite various price cuts and new model introductions, Jefferies expects gradual improvement to 10% penetration by fiscal 2028. However, gaining consumer trust remains a significant hurdle for widespread acceptance.

Market Reactions

Following these announcements, the stock market saw mixed responses:

• Hero MotoCorp shares fell by 2.45% to ₹3,902.90.
• Bajaj Auto shares decreased by 2.09% to ₹8,075.
• TVS Motor shares rose by 1.31% to ₹2,771.50.
• Eicher Motors saw an increase of 1.65%, reaching ₹5,906.50.

As of 11:27 a.m., the benchmark Nifty 50 index was up 0.29%, while the Nifty Auto index saw a slight increase of 0.21%.

In conclusion, while the two-wheeler sector faces challenges, certain companies like TVS and Eicher are positioned for growth, making them attractive options for investors looking to navigate this evolving landscape.