Citi Research remains constructive on the auto sector but sees intense competition and limited pricing power in two-wheelers, leading the brokerage to prefer ancillary player Endurance Technologies in the segment.
Speaking with NDTV Profit in a Citi India Research Q1 FY27 Earnings Roundtable, Arvind Sharma, Director, India Autos & Transportation Research at Citi Research, said the brokerage sees Endurance as a better play in the two-wheeler space.
Sharma was asked about the brokerage's view on two-wheelers, with the anchor specifically pointing to Bajaj Auto and TVS Motor given their recent performance. Sharma said competition in the segment is “very, very high”, which is affecting companies' pricing ability, while valuations are “not really very attractive”.
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“For two-wheelers, we would prefer an ancillary like Endurance, which supplies to literally every two-wheeler maker in India. That's perhaps a better play out there,” Sharma said.
Citi's preference for Endurance comes despite its constructive stance on autos overall. Sharma said auto companies have managed commodity cost challenges well and that Citi continues to favour domestic-oriented market leaders.
The brokerage's broader auto pecking order is Maruti Suzuki, Eicher Motors and Mahindra & Mahindra, in that order. Sharma said the three are market leaders in specific segments and are seeing strong volume growth.
Sharma also pointed to strong recent demand trends. He said two-wheeler and tractor numbers have been “extremely strong” and much stronger than Citi had anticipated. Rural demand has also been encouraging, although he cautioned that monsoon conditions could still have an impact.
The preference for Endurance reflects Citi's view that the ancillary offers a better way to participate in two-wheeler growth while avoiding some of the competitive and valuation pressures facing the manufacturers.
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Analyst Disclaimer: Within the previous 12 months, Arvind Sharma, Analyst, and/or members of their team have viewed the material operations of Hero MotoCorp, Hyundai Motor India, IndiGo Airlines (InterGlobe Aviation Ltd.),Mahindra & Mahindra and were not reimbursed by the company for expenses associated with the visit. Citigroup Global Markets India Private Limited and/or its affiliates may have, from time to time, actual or beneficial ownership of 1% or more in the debt securities of the subject issuer.
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