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Competition in India's passenger vehicle () segment is likely to remain elevated over the next four to five years, while the two-wheeler (2W) market is expected to retain a more disciplined competitive environment, creating a widening divergence in profitability across the automobile sector, according to a research report by Jefferies.
The global brokerage firm said the PV industry is heading into an intense product cycle, with the top four manufacturers collectively planning around 35 new nameplates over the next four to five years. A sustained flow of new models, particularly in SUVs, is likely to keep pricing and competitive pressures high even as demand remains healthy. Jefferies said the contrasting competitive environments were already visible in June-quarter performance. Combined volumes across its covered 2W universe increased 26 per cent year-on-year, while EBIT rose 39 per cent. In comparison, PV volumes increased 25 per cent, but EBIT declined 15 per cent, highlighting the stronger ability of the 2W segment to convert revenue growth into operating profit. Amid opposing forces of strong demand and cost pressures in Jun-Q, 2W OEMs demonstrated superior ability to translate top-line growth to EBIT, while PVs lagged, Jefferies said in the report. The brokerage expects this divergence to remain an important feature of the sector as competition intensifies in passenger vehicles. The entry of new capacity and potential expansion by global and domestic players could further increase the number of models competing for market share, particularly in the SUV segment. In contrast, the 2W market remains relatively rational, with manufacturers placing greater emphasis on profitability alongside volume growth. Jefferies also noted that the risk of major new global entrants remains limited because most large international two-wheeler manufacturers already have a presence in India. The electric two-wheeler market is also showing signs of becoming more stable, with incumbent manufacturers retaining a significant share of the market and maintaining profitability despite a rising EV mix. The report noted that pricing discipline in the internal-combustion-engine portfolio has helped cushion the impact of the transition towards electric mobility. Jefferies sees passenger vehicles as offering a larger long-term growth opportunity because of India's relatively low car penetration. However, the report suggests that the competitive landscape in two-wheelers is materially more favourable, with premium motorcycles, scooters and electric models providing avenues for sustained growth. (ANI)
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