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EV Automakers – Search for the Indian Tesla

Updated: Sep 29, 2023


Part 1: Industry Analysis

The global electric vehicle market is growing at a rapid pace. According to EV volumes, the overall electric vehicle reached a global share of 8.3% (including battery electric vehicles [BEVs] and Plug-in hybrid electric vehicles [PHEVs]) in 2021 from 4.2% in 2020 with 6.75 million vehicles on the road. This is an increase of 108% as of 2020.

How did it all start?

It’s hard to pinpoint the invention of the electric car to one inventor or country. Instead, it was a series of breakthroughs -- from the battery to the electric motor -- in the 1800s that led to the first electric vehicle on the road.

In the early part of the century, innovators in Hungary, the Netherlands, and the United States -- including a blacksmith from Vermont -- began toying with the concept of a battery-powered vehicle and created some of the first small-scale electric cars. And while Robert Anderson, a British inventor, developed the first crude electric carriage around this same time, it wasn’t until the second half of the 19th century that French and English inventors built some of the first practical electric cars.

In the U.S., the first successful electric car made its debut around 1890 thanks to William Morrison, a chemist who lived in Des Moines, Iowa. His six-passenger vehicle capable of a top speed of ~20 km per hour was little more than an electrified wagon, but it helped spark interest in electric vehicles.

Over the next few years, electric vehicles from different automakers began popping up across the U.S. New York City even had a fleet of more than 60 electric taxis. By 1900, electric cars were at their heyday, accounting for around a third of all vehicles on the road. During the next 10 years, they continued to show strong sales.

Henry Ford’s mass-produced Model T dealt a blow to the electric car. Introduced in 1908, the Model T made gasoline-powered cars widely available and affordable. By 1912, the gasoline car cost USD 650, while an electric roadster sold for USD 1,750. With the fall of the electric vehicle around 1910-1920, what changed in the last 30 years?

The first turning point could be the introduction of the Toyota Prius. Released in Japan in 1997, the Prius became the world’s first mass-produced hybrid electric vehicle. In 2000, the Prius was released worldwide, and it became an instant success with celebrities, helping to raise the profile of the car. To make the Prius a reality, Toyota used a nickel metal hydride battery -- a technology that was supported by the US Energy Department’s research. Since then, rising gasoline prices and growing concern about carbon pollution have helped make the Prius the best-selling hybrid worldwide during the past decade.

The other event that helped reshape electric vehicles was the announcement in 2006 that a small Silicon Valley startup, Tesla Motors, would start producing a luxury electric sports car that could go more than 320 km on a single charge. In 2010, Tesla received a USD 465 million loan from the US Department of Energy’s Loan Programs Office -- a loan that Tesla repaid a full nine years early -- to establish a manufacturing facility in California. In the short time since then, Tesla has won wide acclaim for its cars and has become the largest auto industry employer in California.

Tesla’s announcement and subsequent success spurred many big automakers to accelerate work on their electric vehicles. In late 2010, the Chevy Volt and the Nissan LEAF were released in the U.S. market.

[Source: The History of the Electric Car –]

While the superiority of EVs over ICE vehicles is unquestionable, there are challenges around the gaps in economic parity and the sub-developed state of the ecosystem. These challenges can only delay the transition but cannot derail it. The only difficult question now is: By how much longer?

Challenges are:

  • Policy – EVs need the support of government and regulatory framework

  • Battery - The battery not only constitutes 30-40% of the cost of the vehicle but is also the key to solving other hurdles like range anxiety, charge time reduction, the safety of EVs, etc.

  • Charging infrastructure - Innovative business models have come up that offer energy-as-a-service (most of them are based on battery swapping). Home charging will be the primary method in the near term as public charging infrastructure will get developed in sync with the overall EV adoption.

[Source: Avendus report on EVs]

Ok, that’s all good and interesting? But what’s happening in India?

The Indian EV market is also evolving fast as close to 0.32 million vehicles were sold in 2021, up 168% YoY. Ongoing electric vehicle adoption in India is based on the Paris agreement to reduce carbon emissions, improve the air quality in urban areas, and reduce oil imports.

The Indian automobile industry is the fifth largest in the world and is expected to become the third largest by 2030. As per India Energy Storage Alliance (IESA), the Indian EV industry is expected to expand at a CAGR of 36%. As the population rises and demand for vehicles grows, dependence on conventional energy resources is not a sustainable option as India imports close to 80% of its crude oil requirements. NITI Aayog aims to achieve EV sales penetration of 70% for all commercial cars, 30% for private cars, 40% for buses, and 80% for two and three-wheelers by 2030. However, as per the report of Arthur D. Little, the targets look ambitious. The report says that close to a third of all vehicles sold in India are expected to be electric by 2030, but they will mostly be two- and three-wheelers, as expensive battery-powered cars would be outside the reach of many consumers.

The EV push in India opens a plethora of business opportunities across three key segments – mobility, infrastructure, and energy. These include opportunities in EV franchising, EV OEM market, battery infrastructure, solar vehicle charging, and battery swapping technology among several others. According to NITI Aayog, the complete transition to EVs requires a total investment of USD 267 billion (Rs.19.7 lakh crore) in EVs, battery infrastructure, and charging infrastructure.

Foreign direct investment in India’s electric vehicle industry is expected to touch USD 20 billion by 2030, the report predicted. Investments will be boosted by the transfer of technology, as well as alliances between local automakers and global electric vehicle companies, according to the report. In 2021, India’s EV industry attracted investments worth USD 6 billion.

Government initiatives to support the sector are:

  • FAME India Scheme: Faster Adoption & Manufacturing of (Hybrid &) Electric Vehicles (FAME) India was launched in 2015 for promoting growth and early adoption of hybrid and electric vehicles in the country. FAME II scheme was launched in India with a budget outlay of USD 1.3 billion (INR 10,000 crore) to support 1 million e-two-wheelers, 0.5 million e-three-wheelers, 55,000 and e-passenger vehicles, and 7,000 e-buses. The government extended the scheme until 2024, as announced in Union Budget 2022-23. The government will also provide support to set up Charging Infrastructure - 2,700 charging stations; One charging station every 3km in select cities to set up charging infrastructure

  • PLI Scheme: The government introduced the Production Linked Incentive for Advanced Chemistry Cell Battery Storage (PLI-ACC) scheme. The scheme is expected to boost India’s battery infrastructure. As per the Union Budget, the total outlay for the scheme is USD 2.45 billion (INR 18,100 crore), which would be disbursed to beneficiaries over five years once the manufacturing facility is set up.

  • Battery Swapping Policy: A widespread charging infrastructure is essential for EV adoption. In this regard, on April 22, 2022, NITI Aayog released a draft battery swapping policy which will be valid until March 31, 2025. The policy will be implemented over 1-2 years from the date of launch of the policy and will cover all metropolitan cities with a population greater than four million. The second phase will be implemented over 2-3 years from the date of launch of the policy and will cover all UTs and major cities with a population greater than 5,00,000.

[Source: IBEF and Bloomberg]


The Indian EV Industry is slowly gathering momentum, supported by government initiatives and a rise in crude oil prices, as people look for alternative sources to reduce their monthly bills. However, a mass shift from internal combustion engine (ICE) vehicles to EVs requires expansion of infrastructure facilities, including charging stations, and vehicles that could provide a higher range (KM range with a single charge). In the near-term growth should happen pre-dominantly in the following auto segments:

  • Two-wheelers

  • Three wheelers

  • Public Transport – Buses (procurement by State Transport Units)

[End of Part 1]

We have covered the following stocks below: Hero MotoCorp, Baja Auto, TVS Motor, Greaves Cotton, Tata Motors, JBM Auto, and Olectra Greentech


Part 2: Hero MotoCorp Ltd – A Proxy To The Aspirational Rural India Market?

  • Company Name – Hero MotoCorp Ltd (Hero MotoCorp)

  • Current Share Price – INR 2,832 (July 6, 2022)

  • Market Cap – INR 56,585 cr

A. What is interesting about the stock?

Covid-19 pandemic hit every business in the world except probably e-commerce, healthcare & food delivery companies. People stopped venturing out of their homes but many internet-based companies were quick enough to realize this overnight shift in consumer spending. To cater to this new demand, the likes of Zomato, Swiggy, Urban Company, etc. increased their fleet size of delivery partners in major cities across India. However, this model of business works well when everyone works at their peak efficiency levels including the machinery that goes into delivering goods & services. When it comes to efficient vehicles in India, no one comes close to the entry segment bikes from Hero MotoCorp. If you are a regular user of Zomato or Swiggy, there are very high chances that your order might have been delivered using a Hero MotoCorp bike. A small business owner in the hinterlands of India must own a bike from Hero MotoCorp, since they provide excellent fuel efficiency, high reliability & durability under Indian road conditions, along with the benefit of a vast dealership & service network.

Hero MotoCorp Ltd is the world’s largest manufacturer of motorcycles and scooters, a position it has held for the past 20 years. With a presence in over 40 countries across the globe, the Company’s vision is to ‘Be the Future of Mobility, through its R&D, manufacturing, products, services, and sustainable approach. However, Hero MotoCorp’s numero-uno position in the domestic two-wheeler segment is poised to be challenged by incumbent new entrants in the electric mobility space.

Hero Electric belongs to a different part of the Munjal family and was engaged in a court battle with Hero MotoCorp for the use of the Hero brand in the EV space. Recently, an arbitration tribunal appointed by the Delhi High Court has allowed Hero MotoCorp to manufacture and sell electric vehicles under the trademark 'Hero'.

Hero Motocorp is looking to launch its electric vehicle in the next festive season under the brand name 'Vida'.

Separately, Hero MotoCorp has made a couple of partnerships with Ather Energy (35% stake) and Gogoro (JV in India) to address the EV market opportunities. While Ather Energy designs, manufactures & sells electric scooters, Gogoro is a leader in battery swapping technology based out of Taiwan.

Gogoro, started by Horace Luke (ex-HTC), has 2,100 battery stations with over 4 lakhs riders. Horace says that plug & charge is not feasible in an urban setting due to space constraints. The key point is that scooters will be offered without battery & consumers will be offered a subscription model (battery as a service). No hassles to manually charge battery or plug compatibilities, less initial cost of the scooter as the battery will be subscription-based, and no anxiety issues since vehicles can be refueled faster than petrol. Hero MotoCorp plans to scale this JV across the world where Hero MotoCorp is present (Latin American and African markets). All this they plan to achieve through financing provided by Hero Fincorp, in which they have a 41% stake.

To counter the mainstay of Royal Enfield’s premium segment bike category, Hero MotoCorp has started a new JV (38% stake) with Harley Davidson. As part of a licensing agreement, Hero MotoCorp will develop and sell a range of premium motorcycles under the Harley-Davidson brand name.

Two-wheeler dispatches declined by 11 percent in FY22 vs FY21 impacting the revenue of all major players including Hero Motocorp. Sales seem to be turning around in June 2022 with a growth of ~20% on a YoY basis.

Key Strengths

  • In the deluxe 100-110cc segment, Hero MotoCorp’s market share stands at a solid 68% whereas, in the 125cc segment, it commands a market share of 41%.

  • Hero MotoCorp’s bikes are income enablers for a large section of the population hence there is a lot of trust & faith in the brand.

  • Strong, efficient & visionary management led by Dr. Pawan Munjal with high ESG ratings.

Key Weaknesses

  • Due to supply chain disruptions, reverse migration of labor, and subdued demand after the Covid-19 outbreak, the motorcycles, and scooters industry was adversely impacted in 2020-21. In case of any similar lockdowns in the future, we can expect similar downward pressure on sales.

  • Subdued growth with many headwinds like increase in raw material prices, increase in petrol prices, semiconductor availability, and loss of income in lower-middle-income class. Hero MotoCorp’s stronghold is rural India but they have lost volumes & market share there.

  • Lack of product launches in the electric bike space currently, the electric two-wheeler market is dominant with scooters.

B. Key Historical Financials

C. What is my view on company valuation?

Hero MotoCorp, with its established infrastructure, is completely debt-free and available at a P/E (TTM) of 24x & dividend yield of 3.3%. The stock price has remained sideways with a meager return of ~3% CAGR in the last decade. The company has cash & short-term investments of ~INR 11,000 cr (~20% of market cap) in its books.

Its competitors, Bajaj Auto & TVS Motors trade at P/E (TTM) of 20x & 52x respectively. In terms of EV/EBIDTA, Hero MotoCorp trades at 15x while Bajaj Auto at 16x & TVS Motors at 19x.

On an overall basis, the valuation of Hero MotoCorp looks reasonable but the business hasn’t grown much in the last few years. Their investments in the EV space may address some of the growth challenges, and hence investors could evaluate holding the stock in the medium/long term. However, Hero Electric is a separate company, and sharing the brand name could create conflict in the mind of the customers.

D. What are the risks to the investment analysis?

Risks to the analysis are:

  • Delay in the launch of the EV portfolio can dent the growth strategy if not immediately addressed.

  • To make electric two-wheelers mainstream, technology up-gradation & manufacturing capability issues need to be addressed.

[End of Part 2]


Part 3: Bajaj Auto Ltd – Late to EV party?

  • Company Name – Bajaj Auto Ltd (Bajaj)

  • Current Share Price – INR 3,849 (July 11, 2022)

  • Market Cap – INR 111,364 cr

A. What is interesting about the stock?

I have fond memories of Bajaj. I had used the ever-reliable Bajaj Chetak to reach JEE examination center, braving the heat wave in Kota. This was the late 90s – the younger crowd can see Yeh Meri Family from TVF live through that period. Rolling further back, I am now talking about the 80s when the scooters were sold in black and Chetak commanded the highest premium. The brand is rock-solid in the mind of Indians with not-so-young associating it with Chetak scooter and young with macho Pulsar motorbike.

But then what happened – why has the stock underperformed the indices in the last 10 years. Company was slow to embrace change in the 90s when the two-wheeler market shifted from scooters to motorbikes and the market leadership went to Hero Honda (now called Hero Motocorp after their split with Honda). That was the first mega shift in the 2Ws market and now the second one is coming with electric 2Ws. History seems to be repeating itself:

  • Bajaj has launched Chetak electric scooter – selling paltry c. ~1500 units every month vs top 3 selling more than 6,000 units

  • Management took a dig at EV startups rather than getting serious like the recent comment on OATS (Ola, Ather, Tork and SmartE) and BET (Bajaj, Enfield, and TVS) – in the world where industries are getting disrupted at a breathtaking pace.. all incumbents need to be grounded and humble! Of late, we are seeing a change of stance by Bajaj with an investment of INR 300 cr announced in December 2021 and

What’s the big deal about electric 2Ws?

Market like China has seen a sharp uptick in electric 2W sales – now it accounts for more than 50% of the overall market. Agreed that the Indian market is different from the Chinese market, but we may still see big gains in the metro or cities – especially when petrol price is north of INR 100 & oil prices are expected to further firm up in the near term.

Another parallel is happening in the US market where Tesla is marching ahead of its competition. Ola and other start-ups seem to be copying Tesla’s playbook:

  • A direct sale to the customer (not through dealer network)

  • Set-up mega factory – significantly bigger than the competition. Tesla has also set up Giga factories to drive economies of scale

  • Marketing and selling process similar to a mobile phone (Apple iPhone) – customization & color options

Based on Telsa's experience, Ola and other start-ups can put a stiff challenge on the existing players and change the industry dynamics.

Hero Motocorp has an investment in Ather Energy (one of the leading EV 2W start-ups) apart from the owner's family’s exposure through Hero Electric. Hero MotoCorp has announced an investment to launch their EV and TVS has already launched an EV to compete in the market.

India’s two-wheeler domestic market was c. 20 million units in 2020 and is expected to grow 6-8% in the next 5 years with an increase of c. 10-12% in 2021 (reversal of COVID19 impact). The market fell in FY22. Bajaj domestic sales fell in FY22 but were compensated by a significant jump in exports.

Company's domestic 3W retail market share is at 70% which is the highest ever with leadership across every segment namely passenger and cargo and large and small formats. The market share in CNG (incl. Passenger and Cargo) is at 77%. Bajaj's electric 3W (E3W) is expected to be launched in June 2022 in a limited way. Management expects E3W to gain share from CNG 3W in the next 3-5 years.

Strengths and Weaknesses of Bajaj

Key strengths of Bajaj are:

  • Strong brand name – company has been able to pass on a significant increase in commodity

  • Healthy market position in the motorcycle segment – market share of 20%; higher market share in bikes above 150cc

  • Leadership position in exports (2W and 3W) – market share of 59.6% in motorcycles

  • Robust financial profile – cash and investment position of ~INR 25,500 cr

The key weakness of Bajaj are:

  • Weak position in the electric 2W market

  • Increasing competition in the premium motorcycle segment (above 150cc)

B. Key Historical Financials

  • Company showed strong growth in FY22 vs FY21 due to a very poor sales number in Q1FY21 (COVID-19); volume jumped in FY22 on the back of higher exports

  • Margin fell in FY22 on high commodity prices but recovered in Q4FY22 when Bajaj did price hikes to pass some of the increase

  • Cash Flow Convertibility (CFO/EBITDA) is healthy with WC being negative

  • ROCE and ROE are also quite robust

C. What is my view on company valuation?

Bajaj currently trades at an EV/EBITDA (TTM) ratio of c. 16x and a P/E (TTM) ratio of c. 20.5x. That seems reasonable in the current market scenario!

Competitors like Hero Motocorp and TVS trade at EV/EBITDA (TTM) multiple of 15-20x. So, Bajaj trades broadly in line with the competition.

Assuming that Bajaj maintains the market share and margins, the EPS will grow by ~10% in the next few years implying a PEG ratio of 2 which is fine as the company has high ROE/ROCE and negative working capital.

So, on an overall basis, the valuation looks reasonable – the success of its electric vehicle can make or break the investment case. The current offering (electric Chetak) is priced at ~ INR 1.5 lakh which is too expensive unlike the competition (Hero Electric) and the majority of the target segment.

D. What are the risks to the investment analysis?

The biggest anchor in the analysis is Bajaj’s weakness in the electric 2W segment. Any outperformance on this element is a key risk to the analysis:

  • Electric 2W will take some time to stabilize (delay will be positive for Bajaj)

    • some of the batteries have had fire issues

    • large charging network needs to be established

    • high entry price – dependent on subsidy to make it viable

  • Bajaj has been working on electric 2W R&D – a good product launch at a reasonable price can do wonders (example – Tata Motors)

[End of Part 3]


Part 4: TVS Motors Ltd - Navigating disruptions

  • Company Name – TVS Motor Company Ltd (TVS Motors)

  • Current Share Price – INR 857 (July 13, 2022)

  • Market Cap – INR 40,714 cr

A. What is interesting about the stock?

As we all know the auto industry has performed very badly in the last 3-4 years due to various reasons. But now the cycle seems to be turning and it’s a good time to bet on a company that is gaining market share and is introducing new products in 2W EV, tapping into every segment of 2W. In this article, we’ll discuss the TVS motor which is navigating the disruption swiftly.

The domestic two-wheeler industry recorded a sale of 13.4 million units in FY22, a decline of 11% from 15.1 million units in FY21 (FY21 was a 13% decline over FY20). This decline was due to weakened demand in both urban and rural markets, with the rural markets being severely impacted. While the monsoon remained favorable, the non-agri rural services sector underperformed significantly. This manifested itself in lower demand in the entry and mid-level segments of commuter motorcycles and mopeds. The rural markets felt the combined effect of savings depletion, income erosion, broad inflation,

fuel inflation and rising vehicle prices due to commodity cost increases.

Electric two-wheeler today accounts for 4.5% of the total two-wheeler registrations. However, this underrepresents the consumer mind space that it enjoys. The last year has seen the consumer perspective of the transition to EV move from "If" to "When". Large numbers of consumers today are actively considering EVs for their respective needs. The industry saw a robust growth of ~5.6x.

Two wheeler market had a unique FY20-FY22 for the following reasons:

  • Divergent growth vs other auto segments: 2W segment has been generally resilient during the period of sharp economic slowdown. However, in FY20 the decline was similar to that of Passenger Vehicles (PVs). More importantly, during the past recovery periods, 2W has typically done well vs PVs. FY21 and FY22 are an exception, where 2W continue to decline while other sub-segments like PV and CV recovered.

  • Diverse trends within the 2W industry: Up until FY18, 2Ws were witnessing a premiumization trend. However, the trend has stopped in 2W.

In June 2022, the 2W segment witnessed partial recovery due to good rural demand and the festive season. Additional tailwinds supporting the industry are:

  • The banning of the export of steel will help reduce key raw material cost

  • Softening of other commodity prices

TVS Motors was initially set up as a Moped division of Sundaram Clayton Limited (SCL) – a collaboration between Clayton Dewandre Holdings, UK, and TVS Group – in 1979. The idea was to create a product that could comfortably carry two people at a low cost in the hills of Tirupati. TVS-50 – a 2-seater, 50CC 2W moped – was thus launched in 1980.

In 1982, SCL entered into a JV with Suzuki Motor, Japan to form Ind-Suzuki Motorcycles Limited (ISML), which kick-started the motorcycle revolution in the country with the launch of 100 cc Indo-Japanese motorcycles. ISML was later merged with the Moped division of SCL in 1986 to form TVS-Suzuki Ltd. The TVS-Suzuki JV ended in 2001 and the name of the company was changed to TVS Motors Company Ltd.

Company made two acquisitions to augment electric vehicle plans in FY22:

  • USD 100 million a for 75% stake in Swiss E-Mobility Group

  • USD 18 million for an 80% stake in GO Corporation

Private equity giants TPG Capital and KKR & Co likely are in talks with TVS Motor to invest at least USD 300 million for the expansion of the EV business.

On an overall basis, Company incurred a capex of INR 730 cr and investments of INR 1,350 cr in FY22. The Company plans a capex of INR 700 cr in FY23.

TVS Motors has three segments mopeds, scooters, and motorcycles with negligible presence in the three-wheeler market:

  • Moped: TVS Motors has a near monopoly in this segment However, the segment has been slowing due to rising urbanization, higher costs post-BS-VI transition, and aggressive pricing from new entrant Bajaj. Company, however, has transitioned nicely by switching focus to exports which has helped them effectively use their expertise while negating the domestic market headwinds.

  • Scooters: Company achieved sales of 8.6 lakh units in FY22 and registered a decline of 7% over FY21. However, the Scooters segment for TVS Motors performed better than Industa ry (decline of ~11%) with the launch of new products like Jupiter 125 and Ntorq 125 special editions. The decline in scooters was primarily led by the pandemic impact and subsequent stringent lockdown norms.

  • Motorcycle: Company achieved sales of 7.02 lakh units in FY22 and registered a growth of 12% over FY21. The TVS Apache, performed better than the Premium motorcycle industry with sales of 3.2 lakh units, posting a decline of only 1% while the Premium Motorcycle industry declined by 24% in FY22 against FY21. The Premium motorcycle segment decline was primarily due to the semi-conductor shortages that have affected the supply chain. The Company sold 3.77 lakh units of commuter motorcycles in FY22 which is a growth of 26% over FY21. The Commuter Motorcycle segment’s relative resilience on the other hand reflects the continuing need for mobility to fulfill economic and social responsibilities. However, there is an increased tendency of postponement of purchase, especially in replacement buyers and down-trading due to escalating vehicle acquisition costs has impacted volumes

Why invest in TVS Motors?

  • Presence in all three segments. Bajaj recently withdrew its entry model CT-100 from the market, the cheapest entry-level bike now available in the industry is from Hero MotoCorp and TVS Motors

  • Successful export strategy

  • Increasing focus on the electric 2W segment

  • Partnership with BMW to manufacture motorcycles in the 200-500cc segment. It is a win-win for both TVS – which manufactures up to 250cc and BMW – which manufactures 600cc & higher. It also has the potential of opening up a completely new export market for TVS Motors, if executed correctly.

B. Key Historical Financials

  • Revenue has remained stagnant after the FY19 peak due to BSVI norms, covid-19 outbreak, and chip shortages, However, in FY22 TVS reported a 25% increase in revenue from the FY2021 level

  • EBITDA margin has been stable at ~11-12% during FY19-22

  • Net profit grew by 27% in FY22

  • ROCE/ROE had deteriorated in FY20-22 vs FY19

  • Net debt/equity is quite high at 3.1x in FY22 with interest coverage at 2.9x which is not comforting

  • Cash flow convertibility (CFO/EBITDA) has been poor since FY19 with CFO being negative in FY22 due to significant loans and advances

C. What is my view on company valuation?

TVS Motors trades at a PE (TTM) multiple of 54x vs Hero MotoCorp at 25x, Eicher Motors at 48x, and Bajaj Auto at 21x.

TVS Motors has an EV/EBITDA (TTM) of 19x vs Hero MotoCorp at 15x, Eicher Motors at 29x, and Bajaj Auto at 16x.

So, the Company is overvalued at the current levels and high leverage doesn’t help. However, it could be an excellent investment opportunity with a strong business and management team at the right entry price for long-term investors.

D. What are the risks to the investment analysis?

Risks to the analysis are:

  • Barring Mopeds, Company does not enjoy a leadership position in the domestic market in any of these sub-segments. Additionally, the market is highly competitive

  • TVS Motors has no products in the low-speed electric 2W market

  • Economies of most of TVS’ export destinations in Africa and Latin AM are vulnerable to crude and commodity price volatility

[End of Part 4]


Part 5: Greaves Cotton Ltd – In Midst Of A Transformation

  • Company Name – Greaves Cotton Limited (Greaves Cotton)

  • Current Share Price – INR 147 (July 1, 2022)

  • Market Cap – INR 3,413 cr

A. What is interesting about the stock?

The engineering sector in India is the country's largest industrial sector. It accounts for 27% of all factories in the industrial sector and 63% of all international partnerships because the engineering business (electrical and non-electrical) creates a variety of items (durable machinery, equipment, and so on) that are utilized by a diverse range of end-users in industries such as agricultural, chemical, automobile, petrochemical, fertilizer, textile, mining, power, and defense. Increased investment in infrastructure and industrial output has propelled India's engineering sector to new heights in recent years. India has made great progress in strengthening its engineering industry as part of its goal to become a worldwide superpower. India exported engineering items worth INR 4.8 lakh crores in FY22 (through October), up from INR 3 lakh crores in FY21 (until October). The Engineering R&D market in India will grow from 2.7 lakh crores in FY19 to 3.1 lakh crores by FY22.

Greaves Cotton is a multi-faceted engineering firm. It is a prominent manufacturer of Cleantech Powertrain Solutions (CNG, Petrol, and Diesel Engines), Farm equipment, Generator sets, E-Mobility, and Aftermarket Spares and Services. Under several business segments, the firm now manufactures products and solutions with after-sales supported via 500+ Greaves Retail Centers and 6,300+ smaller spare parts retail locations across the country. The firm produces over 4 lakh engines each year, or roughly one per minute in the mobility industry. In addition, it provides low-cost mobility solutions to the bulk of India's population, conveying over 1 crore passengers and 5 lakh tons of freight daily. Greaves Cotton has a market share of around 60%-65% in the 3W diesel engine segment. Greaves Cotton supplies engines to around 30 original equipment manufacturers (OEMs) in India, such as Piaggio Vehicle Limited, Mahindra & Mahindra Limited, Atul Auto, etc.

Greaves Cotton is undergoing a metamorphosis from a 3W diesel engine producer to a last-mile mobility ecosystem. Greaves Cotton is well-positioned to benefit from this industry growth, thanks to its acquisition of Ampere, which held approximately 11% market share in the e-2W segment in FY22 (FY21: 14%), new launches in the high-speed category large capacity expansion planned, and expansion into the e-3W space through Bestway (acquisition in November 2021) and MLR Auto. Ampere sold 24,688 units of EV two-wheeler in FY22 and is the number 3 player in the market, compared to market leader Hero Electric, which sold 65,303 units during the same period.

Greaves Electric Mobility, a division of Greaves Cotton, sold ~ 40,000 E-3W in FY22. E-2W and E-3W volume jumped by ~130% in FY22.

With future development in mind, Greaves Cotton has reinforced the leadership team of the e-mobility business to expedite business expansion. It has hired Roy Kurian, the former marketing head of Yamaha India, to lead its EV business. To remain cost-competitive, the firm is constantly seeking to increase localization in its e-vehicles, with lithium-ion cells being the single major import. The business is constructing a new electric vehicle manufacturing factory in Ranipet, Tamil Nadu, at an anticipated investment of INR 700 crore. Abdul Latif Jameel has committed to invest up to USD 220 million in Greaves Electric Mobility. Apart from building its online platform, the firm has cooperated with major e-commerce platforms such as Paytm, Flipkart, and Amazon to attract young buyers.

Greaves Cotton has a net cash position of ~INR 450 cr.

Nagesh Basavanhalli, Managing Director and Chief Executive Officer of Greaves Cotton, decided to relinquish his executive responsibilities in August 2020 due to personal and family commitments and resumed the role in November 2020.

Company has had three CFOs in the last 4 years:

  • Neetu Kashiramka joined in Jan 2018 and resigned in April 2020

  • Amit Mittal joined in April 2020 and resigned in November 2020

  • Dalpat Jain joined in Jan 2021

B. Key Historical Financials

  • The COVID-19-led lockdowns had a substantial impact on business. The Company recorded consolidated revenue of INR 1,710 crore in FY22, down from INR 1,911 crore in FY20. EBITDA margin fell in FY22 with losses increasing on net profit level

  • Company operations have recovered in Q4FY22 but the EBITDA is flat on Ya oY basis

  • Company had poor cash conversion (CFO/EBITDA) in FY22 due to "other WC item". We would need to read the annual report to get more details

  • ROCE/ROEise -1%/-5% in FY22

C. What is my view on company valuation?

Greaves Cotton aspires to grow its sales and service channels, as well as invest in technology and resources, to become a market leader. Greaves Cotton will be affected by any swing in the EV adoption. They are not yet mainstream, despite numerous new Indian firms entering various sectors of the EV value chain, considerable cash invested in the space, and large-scale execution efforts.

Currently, Greaves Cotton trades at an EV/EBITDA (TTM) ratio of 65x. The Company peers Cummins India, Kirloskar Oil, and Swaraj Engines trade at EV/EBITDA (TTM) of 23x, 9x, and 10x respectively.

A protracted capex cycle, the unpredictability of expenditures (particularly electric), and low growth in net sales and EBITDA margins may dampen investor sentiment.

Company has joined the EV area, which is hot right now, and as a result of the potential, demand for the stock has climbed and the price has risen post-March 2020, therefore, it is worth investing in only after a significant correction or turnaround in the business.

D. What are the risks to the investment analysis?

Risks to the analysis are:

  • Continuous investor interest in EV companies and ancillary providers can keep the stock price high for a long time. Strategic investor/Private Equity interest might cause the price to runaway

  • Institutional (FII and DII) stakes in the Company have fallen from ~30% as of March 2019 to ~13% as of March 2022 – this doesn’t augur well for long term

[End of Part 5]


Part 6: Tata Motors Ltd: Steam left?

  • Company Name – Tata Motors Ltd (Tata Motors)

  • Current Share Price – INR 408 (July 1, 2022)

  • Market Cap – INR 145,650 cr

A. What is interesting about the stock?

Tata Motors is a household name with TATA trucks and buses spotted and used at least a few times by most Indians. Part of one of the most trusted business groups, Tata Motors is the leader in the commercial vehicle segment in India. It also has a presence in the passenger vehicle (cars, SUVs) segment although it had been a laggard with uninteresting models and quality/reliability issues. Not very widely known is that it also owns two iconic brands, Jaguar and Land Rover (JLR business) which came with the legacy acquisition more than a decade back.

The next few years seem strong for all businesses under Tata Motors aided by broader economic growth as well as conscious actions by management. Read on for the details.

Strong outlook for commercial vehicle (trucks) business in India

  1. The domestic commercial vehicle (CV) business is well set for a strong revival post the sharp down-cycle in past few years. FY21 MHCV industry volumes stand at the lowest in the past 18 years and were 60% below the recent peak in FY19. In fact, including scrappage of trucks as per regulation, the overall on-ground fleet contracted in FY21.

  2. As the economy opens up and activity continues to improve, demand for CVs is likely to jump. FY22-24 should see a volume CAGR of 30%/20% for medium/light CVs. Volume run rate in Nov-21 stood at 266,000 annualized compared to 160,000 vehicles sold in FY21. Over the medium to longer-term, freight traffic growth and hence the demand for CVs is linked to GDP growth and this should be a key driver for Tata Motors.

  3. Tata Motors, with a strong product portfolio and distribution/service network, enjoys 50%+ market share in MHCVs and ~40% market share in LCVs. Hence would be a key beneficiary of the volume uptick. The recent uptick in market share further adds to conviction on faster growth than the market. Tata Motors' volume jumped more than 50% in FY22.

Gaining back the mojo in passenger vehicles (cars and SUVs)

  1. The Indian passenger vehicle industry has suffered due to global chip shortages even as end demand has held up well. Waiting periods for cars are long and manufacturers have healthy order books. As chip supply continues to improve, volumes should grow fast on a low base.

  2. Over the past few years, Tata Motors has dramatically overhauled the domestic passenger car and SUV offering with new models across segments that exude better quality, trendy designs, and better reliability. And the new portfolio has been well received by consumers as reflected in market share improving from 5% in FY20 to ~12% in FY22. This also drove improvement in profitability since FY21 vs loss in FY20. EBITDA margin of the business improved from 2% in FY21 to 5.3% in FY22.

An early mover in the domestic EV business with a 70% market share

  1. The key risk which has plagued auto stocks is the emergence of Electric vehicles and the likely negative impact on traditional vehicle manufacturers. But even as the domestic electric vehicle industry is very nascent (approximately 0.5% penetration), Tata Motors has been an early mover and has scaled up well with a strong suit of products at competitive prices. Tata Motors dominates the business with a 70% market share.

  2. Key products here include Tigor EV (306km range) and Nexon EV (312km range) sold across 60 cities from 150 touch points. This is supported by public charging network of 700+ chargers across India, 150+ private charging points, and 7000+ slow AC chargers

  3. The company has recently announced an investment of USD 1 bn by TPG for an 11-15% stake in the EV subsidiary implying a valuation of USD 6.5-9bn setting a healthy benchmark for valuation for Tata Motors' stake.

JLR set to see healthy volumes post chip shortage

  1. As in India, JLR volumes too have seen the impact of chip shortages which should normalize gradually. Commentary across players suggests the last reported quarter was the worst and supplies are improving.

  2. JLR has a strong order book for passenger vehicles (more than 3 months) and also has low inventory levels with its dealers. Hence amid the relatively healthy end-user demand, volume growth should be healthy.

  3. New product launches – Range Rover and Range Rover Sport will add additional volumes and support profitability too.

Tata Motors India's business volume has been robust for Q1FY23 with 101% growth on a YoY basis (marginally down on a QoQ basis). Total sales for CV in Q1FY23, including trucks and buses, stood at ~100,000 units, compared to ~50,000 units in Q1FY22. Domestic passenger vehicle sales are up ~100% YoY to 130,000 in Q1FY23 when compared with 64,000 units sold in Q1FY22. However, it would be key to watch JLR volumes in Q1FY23 as the JLR business contributes 60-65% of revenue & EBITDA and around 50-55% of the Enterprise Value. JLR business could face challenges due to the China shutdown in this quarter and recession fears in Europe over the long term.

B. Key Historical Financials

  • Revenue grew 11% in FY22 on a YoY basis but is still lower than FY19 revenue

  • EBITDA margin fell in FY22 to 9% vs 13% in FY21 due to higher commodity prices and supply chain challenges. EBITDA margin fell for JLR and CV business which was partly compensated by an increase in the margin of the Indian passenger vehicle business

  • CFO in FY22 was down 50% vs FY21

  • Company continues to make losses on net profit level with an increasing debt level

C. What is my view on company valuation?

Tata Motors is currently trading at an EV/EBITDA multiple of 9x. Using the sum-of-parts valuation, with JLR business at 6.5x (Mercedes and Volkswagen-Audi trade between 6-7x on EV/EBITDA), India business at 10x, and EV business at TPG entry price, the current valuation seems to be fully priced with no margin for safety.

The stock has already run up more than 100% in the last 3 years on the back of expectations of improved performance but has fallen ~25% from December 2021.

Company could face challenges in the next couple of years from the zero COVID policy in China & recessionary fears in Europe both impacting JLR business and increasing the interest rate environment in India. Investors should watch out for these risks and evaluate investing at lower levels.

D. What are the risks to the investment analysis?

Risks to the analysis are:

  • The turnaround in the business is needed as the Company has been making consistent losses since FY19

  • Both CV and JLR businesses are cyclical - problems have increased due to the China lockdown and the Russia-Ukraine war

[End of Part 6]


Part 7: JBM Auto Ltd – Homegrown Autocomp Player Transforming Into an EV bus Player

  • Company Name – JBM Auto Limited (JBM Auto)

  • Current Share Price – INR 450 (July 13, 2022)

  • Market Cap – INR 5,322 cr

A. What is interesting about the stock?

The world is reeling under two major issues relating to mobility – environmental pollution and congestion. Of the 20 most polluted cities in the world, 14 cities are in India. Transport is one of the biggest contributors to pollution and public transportation accounts for 90% of transport. Thus, the transition to sustainable & clean mobility is a necessity and not an option. With this vision in mind, new players are emerging in the electric vehicle space, JBM Auto being one of them.

JBM Auto was incorporated in 1990 mainly to manufacture tools, dies, and molds for the automobile industry, from its Faridabad facility. Subsequently, in 1993, the company entered the sheet metal components manufacturing business for OEMs other than Maruti Suzuki to benefit from the growing demand from the automotive sector. Further, in 2006, JBM Auto started its Special Purpose Vehicle division engaged in the fabrication and assembly of bodies of heavy vehicles. It currently manufactures over 5 lakhs of auto components and assemblies daily. It exports components to Sweden, Brazil, Belgium, Vietnam, Romania, North America, Russia, and Japan for world-renowned auto OEMs. JBM Auto is the only Indian company to have transformed into an OEM from Auto component manufacturing within 20 years of its inception.

JBM Auto has commissioned a first-of-its-kind e-mobility platform to facilitate seamless induction, running, charging, and maintenance of electric buses in the country. This offering

comes in as a just-in-time solution and has been deployed in the cities of Ahmedabad, Gujarat, and Port Blair, Andaman & Nicobar. The Company created a unique ‘Well to Wheel’ ecosystem aimed at provisioning green & sustainable public transport solutions to be the preferred complete e-mobility ecosystem provider encompassing electric vehicles, charging infra, and power infra to maintenance & support, thereby, optimizing the total cost of ownership for the customers. It manufactures BS-VI compliant 12m LF Buses which run on CNG and in the EV space, the 12m LF Electric Buses, and 3 variants of the 9m HF. JBM has entered into a JV with the European EV giant Solaris for the technological know-how. This vertical of JBM Auto operates under its two subsidiaries (51% stakes in both), viz, JBM Green Energy & JBM EV Industries. JBM Green Energy is engaged in manufacturing complete lithium-ion battery packs for electric vehicles, to meet the localization norms for electric vehicles as outlined in various government policy initiatives. JBM EV Industries manufactures key aggregates and auto systems for electric vehicles. This helps to reduce the Total Cost of Ownership (TCO) for the fleet operators & bus aggregators. JBM has acquired prestigious orders from DTC for 700 nos. of 12m CNG BS-VI buses and 200 nos. of 12m EV buses, which are under execution. Order from BMTC, Bangalore has also been bagged by JBM.

Barring the battery, all high-level electronics and electrical components are either being sourced locally or developed locally by the Company. JBM has roped in 25 local companies to meet the requirements of its key electronics & electrical components. The Company is also engaged in developing in-house critical software & controllers for electric buses.

Key Strengths

  • Joint Venture partner Solaris Bus & Coach SA provides support for the technology transfer of Electric Buses in India.

  • Improved revenue growth & sustainable increase in EBITDA during FY21-22.

  • The market size for electric buses used for public transportation in India is expected to explode. JBM's E-mobility ecosystem is favorably positioned to leverage this market opportunity.

Key Weaknesses

  • STUs, schools & airports are the only customers they currently cater to, hence these fleet operators will have different requirements based on geography & practical use cases. Corporate orders have still not picked up.

  • Stiff competition from Olectra Greentech, Tata Motors & Ashok Leyland in terms of better pricing & products can prove a dampener to JBM Auto’s growth

  • Currently, it has only one Electric Bus model, JBM ECO-LIFE, on offer. Competitors have different models with equally diverse variants to cater to specific customer needs.

B. Key Historical Financials

  • Company has shown strong revenue growth in FY22 after poor results in FY21.

  • JBM Auto revenue increased by 44% in Q4FY22 vs Q4FY21 with stable EBITDA margins

  • Cash flow convertibility (CFO/EBITDA) has been poor in FY22 with an increase in working capital

  • ROCE/ROE has improved in FY22 vs FY21

C. What is my view on company valuation?

JBM Auto stock has seen a brilliant run over the past year, giving ~150% returns. With a P/E of ~34x, JBM Auto is better priced than its direct competitor Olectra Greentech whose P/E is ~130x. However, the higher debt levels (D/E of 1.5x) of JBM Auto versus the debt-free status of Olectra Greentech might prove to be a dampener. JBM Auto has been trying to aggressively reduce its debt over the past 5 years, but due to higher investments, an increase in working capital & product development costs related to Electric buses, it has struggled to maintain higher Free Cash Flows (FCF).

The stock has been on a downtrend since January 2022 and hence investors are advised to exercise caution while investing at current levels. Post stock split (FV 10:2) the stock has seen a 20% correction and hence more consolidation at current levels or below cannot be ruled out. Long-term investors can keep monitoring the stock evaluation accumulation at lower levels.

D. What are the risks to the investment analysis?

Risks to the analysis are:

  • Due to the long gestation time taken in the tendering process and delivery mechanism, a multi-fold positive impact on company financials could take a lot more time than expected.

  • Prices of key raw materials like Nickel, Neon gas for the Li-ion Battery have shot up recently due to the Russia-Ukraine war, which could negatively affect the financials of Electric Vehicle makers in the next few quarters.

[End of Part 7]


Part 8: Olectra Greentech Ltd – A Chinese Automaker’s Foray Into Indian Markets?

  • Company Name – Olectra Greentech Limited (Olectra)

  • Current Share Price – INR 571 (July 6, 2022)

  • Market Cap – INR 4,687 cr

A. What is interesting about the stock?

Diesel prices have been hiked 69 times in 2021 reaching an all-time high of INR 98 per liter before tax reductions came as a respite during Diwali. The Public Transport Undertakings (PTUs) & common man often bear the brunt of such irrational rate hikes. A huge financial impact is seen on the PTUs fleet operations with the increased diesel prices. It impacts the Total Cost of Ownership (TCO) for Diesel fueled Buses. Hikes in fuel costs are one major factor that has been behind the shift from Diesel to Electric lately.

The Government of India’s goal to achieve net-zero emissions by 2070 as committed during the COP26 summit, presses the need to focus on Electric Vehicles (EV) as the ‘future of mobility. The vision of NITI Aayog that only electric vehicles should be sold in India after 2030 would result in a reduction of 156 million tons in Diesel and Petrol consumption with a net saving of roughly INR 3.9 Lakh Crore by 2030 at present oil prices. India’s focus on EVs started with converting its aging diesel-guzzling dirty State Road Transport Undertaking’s (STUs) buses into electric. India has historically been underpenetrated in terms of the ratio of cars per thousand individuals compared to developed countries like the USA, UK, and Australia. Hence its population’s dependence on public transport is expected to continue. India typically has 1.3 Buses per 1000 population. Countries like Mexico, Brazil, and China boast of more than 2 buses per 1000 population. This affects waiting time, which several citizens catered to.

Olectra Greentech Ltd (formerly known as Goldstone Infratech Ltd) was founded in 1992 in Hyderabad. It is a market leader in the manufacturing of silicon rubber polymer composite insulators in India, with this Olectra has been a part of building the power transmission and distribution in India. Olectra’s vision to support the environment led it to offer a green solution to public transport by introducing Electric Buses in collaboration with BYD Group of China. BYD Group is not only a battery maker but one of the world’s largest electric vehicle manufacturers. BYD is backed by Warren Buffett’s Berkshire Hathaway. Olectra at present produces four types of electric buses. K6, K7, K9 & C9. Their running cost is INR 6.5/km, against INR 11/km for CNG buses and INR 33/km for diesel buses. To understand the unit metrics better, bus services run by KSRTC got a profit of INR 57/km, including the electricity cost, out of the fare collection of INR 110/km. only 0.8 units of electricity are needed for this electric bus to run 1 km.

Olectra has a pending order book of ~1,400 electric buses from different STUs. The company had won an order of 2,100 electric buses from Brihanmumbai Electric Supply & Transport but it got canceled after Tata Motors won a case in Mumbai High Court.

Electric Charging Stations are crucial for running the Busses. Olectra has developed 16 charging stations, 24 charging stations having an average of 10 chargers per station are in the process of development for which space, input power, material procurements, and land development are in an advanced stage. To further speed up the adoption of EVs, NITI Aayog has appointed CESL as a demand aggregator between STUs, Operators, and OEMs. CESL’s main focus is to aggregate the demand in 9 cities taking into consideration Public Transport, Last Mile connectivity for Metro, Airport Tarmac Electric fleet, etc.

EV contributed to ~82% of revenue in FY22. The remaining 18% was contributed by the insulator business.

Olectra is one of the largest domestic manufacturers of insulators for power transmission & distribution networks. In the current decade (2020-2029), the Indian electricity sector is likely to witness a major transformation concerning demand growth, energy mix, and market operations. Global Electric Insulator Market is expected to reach USD 13.7 Billion by 2024, stimulated by the Refurbishment of Aging Grid Technology. The insulator market will grow upwards by a CAGR of ~5% from 2020 to 2025. The composite insulator segment is estimated to be the fastest-growing segment. The present scenario suggests revenue from the Insulator segment to be minuscule compared to the Electric Bus segment.

Key Strengths

  • Technology collaboration partner BYD Auto Co Ltd provides support for assembly, manufacture, sales, marketing, and aftersales service of Electric Buses in India.

  • Improved revenue growth & sustainable increase in EBITDA during FY22.

  • Olectra has the first mover’s advantage with its product offerings, operational info from STUs can help refine its products.

Key Weaknesses

  • STUs are the only customers they currently cater to, hence every STU will have different requirements based on geography & practical use cases. Olectra might lose its only customer base if its expectations are not met.

  • Stiff competition from JBM Auto, Tata Motors & Ashok Leyland in terms of better pricing & products can prove detrimental to Olectra’s vision.

B. Key Historical Financials

  • The Company has shown strong growth in revenue in the Q4FY22 quarter with EBITDA margins of ~12%

  • However, working capital seems to be stretched at 166 days as of March 2022 – this has come down from 900 days as of March 2020. But the cash conversion is expected to remain poor with this level of working capital

  • ROCE/ROE remains quite poor in FY22

C. What is my view on company valuation?

Olectra stock has seen a staggering ~130% returns in the past 1 year. It trades at a P/E (TTM) of 127x and EV/EBITDA (TTM) of 49x. Comparing these metrics with its direct competitors like Ashok Leyland, and JBM Auto, we see a huge overvaluation provided to Olectra. Ashok Leyland trades at an EV/EBITDA (TTM) of 23x while JBM Auto trades at a P/E (TTM) of 33x and EV/EBITDA (TTM) of 18x.

Although Olectra is completely debt-free & prides Nomura & Blackrock as its recent investors, its expensive valuations cannot be overlooked. Loss at Mumbai High Court reflects poorly on the governance standards of the Company. An investor should look to enter the stock on meaningful corrections & when valuations are reasonable.

D. What are the risks to the investment analysis?

Risks to the analysis are:

  • Olectra will construct an EV manufacturing plant with state of art technology to expand capacity to 10,000 buses per year. 150 acres of land have been acquired from Govt of Telangana. Hence, if there is a delay in capacity expansion due to any shortcomings then it can create a negative impact on the stock.

  • Plans to enter into Light Commercial Vehicles, Three-wheelers, Electric trucks & other EV products in the new plant. There are already established domestic players in these segments hence making headway can prove challenging & counterproductive in the future.

[End of Part 8]



We have no stock, option or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. We wrote this article myself, and it expresses my own opinions. We are not receiving compensation for it (other than from SocInvest). We have no business relationship with any company whose stock is mentioned in this article.

We are not SEBI registered advisors. This article is purely for educational purposes and not to be construed as an investment advice. Please consult your financial advisor before acting on it.

We have used publicly available information while writing this article.

1 comment

1 Comment

Dec 02, 2022

Good information

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