Research Report

Studds Limited incorporated in 1983 is the largest manufacturer of two-wheeler helmets in the world in terms of volume of two-wheeler helmets sold in Fiscal 2018 (Source: F&S Report). Their flagship brand Studds, the largest selling two-wheeler helmet brand in India has global presence in 21 countries as of June 30, 2018. In 2016 they launched premium helmet brand ‘SMK’, which has emerged as the leading brand with the largest market share in the premium two-wheeler helmet segment in India in terms of volume of premium two-wheeler helmets sold in Fiscal 2018. They are currently the only manufacturer of premium two-wheeler helmets in India (Source: F&S Report) and their SMK brand of two-wheeler helmets is marketed in 23 countries in Europe, Asia and Latin America as of June 30, 2018. Studds branded helmets constituted a share of 25.66% of the two-wheeler helmet market in India in Fiscal 2018.

Highlights of Financial Performance:

· Revenue from operations has grown at a CAGR of 12.5% from FY18-21.

· EBITDA Margin improved from 15.5% in FY18 to 23.04% in FY21.

· PAT has grown at a CAGR of 31.04% from FY 18-21, in FY 21 Company reported Profit of ₹73.99 Cr. from ₹ 74.55 Cr.

· Company reported ROE of 25.51% in FY 21.

· On consolidated basis company reported cash flow of ₹ 73.94 Cr. and free cash flow of ₹ 37.43 Cr. in FY 21.

Strengths:

· Largest manufacturer of helmets with leading brands and wide product range, they have market share of 25.66% in branded two-wheeler segment.

· Company have over three decades of operations, developed a widespread dealer network in India and globally. Studds has a strong pan India presence.

· Studds has a scalable business model which relies on strong brand recall, The synergies from integrated operations help them in reducing operating expenses and enable them to upscale their operations in an efficient and seamless manner.

Risks:

· One of the biggest risks is the change in government policy.

About the Industry:

The Indian two wheelers industry has grown at compound annual growth rate (“CAGR”) of 5.54% over the past five years, overtaking China to emerge as the biggest market for two wheelers globally, with 17.59 million units sold in Fiscal 2017. Government spending in rural programs and large infrastructure projects are helping two wheelers’ sales in small towns and villages as well. The other key reason for the spurt in sales has been women commuters. With the introduction of automatic transmission in scooters, increasing urbanization, better roads and a growing number of women consumers, the wheels have turned in favour of scooters.

Key Drivers

1.     Rise in India’s young working population with the rising levels of per capita income of people, the Indian two wheelers market offers a huge potential for growth. This growth is relevant in the light of the fact that 70% of India’s population is below the age of 35 years and over 150 million people will be added to the working population in the next five years.

2.     Growth of tier II/III cities and rural India and growing middle income households Growth prospects of Indian tier II and tier III cities and rural economy offer a significant opportunity for the two wheelers industry. The penetration of motorcycles among rural households with income levels greater than US $2,200 per annum has already increased to over 50%.

3.     Driven by extent of disposable income and greater affordability Growth in two wheelers sales has been driven by an increase in affordability of these vehicles. With greater avenues of financing, the customer’s capacity to own two wheelers has improved.

Industry overview of 2 Wheelers and Helmets Industry:

-        The total sales volume of two-wheelers in India in 2015 was 21.2 million units and it is expected to grow to about 25 million units by 2025.

-        The total number of Motorcycles, scooters, and mopeds are expected to increase to 63 million units by 2025 and at a CAGR growth of 3.7%.

-        China is the second-largest two-wheeler market and it is expected to grow at a CAGR of 5.8%. Currently, the annual consumption (16.3 million units) in China and is second only to India (19 million units)

-        The US two-wheeler market is expected to maintain a growth rate of 2.9 percent by 2025.

-        India being the world’s biggest two-wheeler market is also the biggest market for scooter and motorcycle helmets. There are 20 million two-wheelers sold annually and more than 250 million two-wheelers plying on Indian roads. Therefore, India helmet market is world’s biggest.

-        India being the world’s biggest two-wheeler market is also the biggest market for scooter and motorcycle helmets. After sales reached a peak in 2018 with 21-million-unit sales, the sales dropped for 2 straight years drastically and ended at 18.5 M units in 2019 and 13.9M units in 2020. There are more than 250 million two-wheelers playing on Indian roads. Therefore, India helmet market is world’s biggest.

                                                                                                                                                                                                                                                       (source: Tradebrains.in, mobilityforesights.com)

Investment Rational:

-     Rise in accidents prompts the Supreme Court to make it mandatory for OEMs to provide a helmet for every 2W sold-In 2010, to curb the rise in accidents, the Supreme Court jumped to action. It made helmets mandatory for 2W riders and directed OEMs to compulsorily sell a BIS-certified helmet with every sale of a 2W. While the Motor Vehicles (MV) Act, 1988 had made it mandatory for 2W riders to wear helmets, implementation of the rule by local authorities was far from stringent. However, after the ruling by the Supreme Court, implementation of norms across states became significantly stricter. The regulatory framework related to helmets in India is based on two pillars: a) compulsory wearing of helmets while driving a 2W which is governed by the MV Act, 1988; and b) the quality of the material of the helmet that can withstand the impact in case of an accident, specified by the Bureau of Indian Standards (BIS).

-    Increase in demand for helmets amid rising awareness and stricter implementation of rules: As government all over India is mandating wearing helmets, to protect riders from road accidents, which is opening up huge opportunity for helmets maker. Riders all over the world are themselves also becoming more educated and awareness of wearing helmets is increasing. This trend of wearing helmets is gaining pace. Since this is a very unorganised market, the opportunity size for studds is big as they can take away market share from unorganised market.  In addition to the tough stance of local authorities and police towards offenders, over the years, the government and private sector have also collaborated to bring awareness regarding safety in 2W riders. Consequently, the demand for helmets in India more than doubled from 11mn units in FY12 to 24mn units in FY21.

-      Advantage to Organised Player: In 2018, the Government of India passed a rule making the sale of non-BIS-marked helmets and counterfeit helmets illegal. This was a significant step that benefited organised players. Due to the rising awareness about safety and state governments laying stringent procedures to curb the sale of non-BIS-marked or duplicate helmets, the share of the unorganised sector in the helmet industry declined from 55% in FY12 to 30% in FY18. This has open up a huge opportunity for organised player.

Outlook: Studds is the market leader in premium helmets segment holds roughly 26% in helmets segment, going forward, as there is sharp rise in the share of the organised segment, rising demand for premium helmets, the company’s focus on expanding export business and strict implementation of compulsory pillion helmet rules across the country have boded well for growth of the company. Going forward laws related to helmets for 2W riders will continue to be stringent as government wants to reduce death by road accidents. This, coupled with the introduction of regulations making helmet wearing compulsory for pillion riders by an increasing number of states, would be the key growth driver for the helmet industry.