With fuel costs amounting to a staggering 60% of the lifetime cost of owning a car, one can imagine the significant scope for battery-electric-vehicles (BEVs) and all the related components. Add in the new dynamic of connected cars, autonomous driving and data monetization potential, and you begin to understand the extent of disruption and new profit pools that are emerging in the personal mobility space.
India’s auto components industry has global scale, global cost competitiveness, is a preferred partner for the China+1 move and is an early beneficiary of the PLI program. Near term global slowdown worries are overshadowed by the China+1 thrust.
Aviation sector is consolidating after a value destroying decade, which augurs very well for the top 2 incumbents who have built dominant market share. With air traffic expected to grow very rapidly, leaders in this space look very promising.
2 wheelers, passenger cars, auto components and aviation are structural decadal stories while commercial vehicles are cyclical stories which look promising now at this stage of the economic cycle.
Government’s Gati Shakti program aims to reduce total logistics cost from 14% to 10% of GDP, which can give manufacturing sector a big competitive boost globally. But this calls for massive development in the logistics space, which will be led by organized sector leaders. With organized sector accounting for only 1.5% to total sector in India (vs 15% in the US)scope for exponential growth of organized sector leaders is promising.
Valuations in this sector are at long term sector averages, which have been and will likely continue to remain at a premium to market, given the superior growth prospects and the history of growth-driven outperformance.
The India story is about manufacturing and consumption. Transportation and logistics is a great play on both. It is a very significant component of the manufacturing space and is one of the largest components of discretionary consumption.