Maruti Suzuki top pick for 2024: Kumar Rakesh

Kumar Rakesh, Associate Director, Equity Research, BNP Paribas, says “we have seen a very strong demand for electric two-wheelers in March. Understandably, April will be much weaker adjusting for this pre-buying, but May onwards, we would expect penetration to start inching back upwards. Also, there are multiple model launches which are planned by multiple OEMs and that will excite the market even more as we proceed through this fiscal year and next year onwards. So, the market is only going to get far more broadened both from model as well as price point perspective and should keep customers excited in this segment.”

Do you concur with the view that a two-wheeler is going to be the big breakout in 2024 in terms of sales because in terms of the stock performance, last year was very good for the likes of TVS and even Bajaj Auto. Do you see rural sales picking up in the two-wheeler segment?

Kumar Rakesh: To start with, we are slightly more cautious in the two-wheeler segment, than where the Street expectations are, although over the last six months, we have definitely seen an inflection with the demand and growth being quite strong over this period of time.


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Part of the strong growth has also been driven by better availability of financing. We have seen OEMs talking about financing; penetration has increased during this time and that has definitely supported demand. That being said, we have not seen the broad-based demand drivers materially starting to change if you are looking at the crop yield or the crop production during this harvesting season and also the reservoir levels.

All those messages are still quite mixed. So, we would rather wait and see how those demand drivers start panning out to build a much stronger view on or much more constructive view on the two-wheeler demand for the next fiscal year. That being said, there is definitely a tailwind of better financing and we also have to keep in mind that over the last five-six years the price increases have been quite substantial in the two-wheeler sector and that appears to have been largely absorbed in the system.

Now what we are seeing is a reflection of how the incremental demand is panning out and in the absence of any incremental headwind, especially on the cost side, it appears that the industry should at least see a steady growth from here on and if the monsoon season is going to pan out better than the average level, then we should definitely see acceleration in demand, but those demand drivers are yet to fully pan out.

March 31, 2024 was the last day for FAME II as well which ended for EV two-wheelers. Is that something that would furthermore impact in terms of the demand because they would get a bit costlier because subsidy is not there? Would it impact the demand there?

Kumar Rakesh: It would, at least in the near term, but we are not concerned from a medium to long-term perspective, creating demand hurdles. If we go back to last year also when the FAME incentives were reduced, in the immediate month we saw a sharp drop in volume as well as penetration, but each month after that we consistently saw penetration improving and demand gradually coming back to where it was pre-incentive level.

What that tells us is that possibly customers are far more evolved now and have started appreciating the total cost of ownership advantage of these electric two-wheelers in spite of where the incentives are and hence we would be far more constructive from medium to long term. We have seen a very strong pre-buying pushed by OEMs’ customers realising that the incentives would be falling off from April.

So, we have seen a very strong demand for electric two-wheelers in March. Understandably, April will be much weaker adjusting for this pre-buying, but May onwards, we would expect penetration to start inching back upwards. Also, there are multiple model launches which are planned by multiple OEMs and that will excite the market even more as we proceed through this fiscal year and next year onwards. So, the market is only going to get far more broadened both from model as well as price point perspective and should keep customers excited in this segment.

As far as the tractor segment is concerned, CVs have not been doing quite well at least in the last few months and I was going through the expectations coming in from TAFE or the tractor association and they are talking about how FY24 is likely to see a decline of almost 6% and FY25 growth is going to be limited to 4% because Maharashtra and southern states continue to be quite weak. It is a realistic expectation just a 4% growth in tractor in FY25?

Kumar Rakesh: Look at the long history of the tractor industry and over the last four decades, looking at how the industry has panned out, you would notice that there is a very strong cyclicality to the industry and it is about three to five years of cycle for the industry and typically when we enter into the down cycle, it is not just one year of down cycle that we witness. It is typically followed by another two to three years of down cycle as there is more risk to the downside than on the upside on the tractor demand.

These weaker numbers which we have been seeing over the last three to four months, have been quite disappointing. Understandably, March had some changes in the Navratri date and that also would have impacted to some extent but as we enter into the monsoon season, the first part would be very critical to build a view on how FY25 is going to be. The risk would be more to the downside than to the upside looking at how the long-term cycle has been.

Leave us with your top pick of 2024. Which is the stock that is likely to outperform by a big margin if you can only give one big call?

Kumar Rakesh: Our top pick is Maruti Suzuki. We like the passenger vehicle segment from a long-term perspective. Specifically for Maruti, we believe that it is appreciated and there is a huge potential on that.

William Murphy

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