2Ws impress but 4Ws weaken in Indian automobiles sector: IIFL Capital Services

4 Dec 2023 , 11:10 AM

The Auto industry saw very strong growth in case of 2Ws, but 4Ws were weak across the board (PV, CV, Tractors). 2W industry grew 31% YoY, due to strong festive offtake and easy YoY base. Analysts of IIFL Capital Services 2W industry growth estimate of 10% for FY24 was based on 5% YoY growth in H1 and 15% in H2; this is on track with some upside risk. PV grew only 4% YoY. Analysts of IIFL Capital Services expected high dealer inventory to force OEMs to resort to destocking post festive; this seems to be playing out. MHCV declined 1% YoY (big negative surprise). MHCV SAAR fell to 365k vs ~420k in recent months. There is downside risk to analysts of IIFL Capital Services estimate of 12% growth in FY24 (400k). LCV grew 5% YoY, a deceleration from 12% in Oct. Tractors were up 7% YoY. This is entirely due to the calendar shift in festive season. On a ‘Sep+Oct+Nov” basis, tractor industry is down 6% YoY. 

MHCV weakens suddenly; LCV stays lacklustre: 

MHCV industry declined 1% YoY, a big negative surprise after the average 20% growth in recent months. MHCV SAAR collapsed to 365k, from ~420k in Sep/Oct. Part of the drop may be attributable to elections in 5 States (18% of sales). If true, general elections (pan-India) may hurt volumes significantly in Q4FY24. There is a downside risk to analysts of IIFL Capital Services estimate of 12% growth in FY24 (400k). LCV grew 5% YoY; this is a deceleration vs 12% in Oct. On YTD basis, LCV is flattish, in line with our estimate for FY24. 

PV growth weakens to 4% as destocking starts: 

PV industry grew 4% YoY in Nov’23. Although retails in the festive season were strong, they were supported by pre-existing order book. New order flow was weak and dealer stock was high, prompting OEMs to get into destocking mode. Maruti’s Nov’23 mkt-share dropped to 40% from 42-43% in recent months. Tata bounced back to 14%, from 12% in recent months. M&M’s SUV volumes came off to 40k vs 44k in Oct. We have been highlighting that M&M’s SUV retails (as per Vahan) have not kept pace with wholesales. 

Tractors up 7% YoY in Nov, but down 6% in ‘Sep+Oct+Nov’: 

Tractors grew 7% YoY in Nov’23. This growth is entirely attributable to the 3-week shift in festive calendar. If we even out the calendar shift and look at sales on “Sep+Oct+Nov” basis, the industry was down 6% YoY. The deficient monsoon has led to moderation in end-demand. We forecast 1% growth for the Tractor industry in FY24. 

Domestic 2Ws up 31% YoY; 2W export recovery slower than expected: 

2W industry grew 31% YoY, but dropped 15% MoM (seasonal). The festive off-take was very strong. This, combined with an easy YoY base (festive calendar shift, destocking in 2022), led to very strong growth in Nov. Among 2W players, Royal Enfield (RE) underperformed with only 14% growth in domestic volumes. RE’s model Hunter has now entered the YoY base. 2W/3W exports have bottomed out, but the improvement is gradual. Bajaj’s exports saw small sequential improvement, but TVS’ exports dropped 14% MoM (negative surprise).