Bajaj Auto, TVS Motor to gain from export incentives under PLI scheme

May outperform Hero MotoCorp on higher export demand

Two-wheeler exporters Bajaj Auto and TVS Motor are expected to be the key beneficiaries of the production-linked incentive (PLI) scheme for the auto sector. At Rs 57,000 crore, the sector could corner the largest chunk of the incentive, accounting for 29 per cent of the Rs 2-trillion package across sectors.

While the government has announced details of the scheme for the pharma and the electronics sectors, it is expected to roll out the package for the auto sector shortly. 

Automakers with overall revenues above Rs 10,000 crore and export revenues exceeding Rs 1,000 crore would be eligible for benefits. Incentives range from 2 per cent to 12 per cent of incremental sales and export revenues.

Bajaj Auto and TVS Motor are the largest exporters in the listed space with export revenues of Rs 12,000 crore and Rs 5,000 crore, respectively, which account for 28-40 per cent of their overall revenues. 

Among other players, Bharat Forge and Balkrishna Industries (BIL) with export revenues in the Rs 2,600 crore-Rs 3,800 crore range, too, stand to gain. BIL gets over 80 per cent of revenues from exports, the highest in the auto space.

What may add to overall gains for the companies is whether the export incentives under the merchandise exports from India scheme or MEIS withdrawn earlier are given back under the Remission of Duties or Taxes on Export Product (RoTDEP) scheme, say analysts at Nomura Research.

In addition to export benefits, two-wheeler exporters may outperform domestic peers given that rising crude oil prices and lower impact of Covid-19 on key export destinations in Africa, Southeast Asia and Latin America are expected to keep demand buoyant.

Domestic demand continues to be under pressure, with analysts at Prabhudas Lilladher expecting a 20-22 per cent YoY decline in retail sales, led by lower discounts and falling finance approval rates.

While Bajaj Auto and Hero MotoCorp trade at similar valuations of 18x FY22 earnings estimates, TVS Motor continues to trade at a 50 per cent premium to its larger peer. 

While the two exporters are in a better position, await consistent volume improvement before taking exposure.