Growth rate moderates across the board in auto sector: IIFL Capital Services

3 Apr 2024 , 10:33 AM

The Auto industry, in March 2024, saw continuation of the trend from the preceding months, with growth in B2C segments and weakness in CV and Tractors. PV industry grew 8% YoY; Q4FY24 has been characterised by inventory restocking at dealerships after destocking in Q3FY24. 2W industry grew 15% YoY; growth rate of wholesales is higher than retail growth, as there was destocking in the base (2023). MHCV industry volumes declined 9% YoY, with SAAR coming in at 370k, lower than FY24 volume of ~375k. This casts doubts on growth in FY25. LCV segment declined 11% YoY, and ended FY24 with 3% decline. Tractors were down ~25% YoY, due to weak demand as well as a shift in the festive calendar. A weak exit to FY24 implies downside risk to FY25 growth estimates, especially in CV and Tractors.

MHCV and LCV decline YoY:

MHCV industry declined 9% YoY in Mar and ended FY24 with 4% growth. MHCV SAAR came in at ~370k in Mar vs FY24 absolute volumes at ~375k. Since the current SAAR is lower than FY24 volumes, it casts doubts on growth in FY25. Tata Motors mgmt expects CV demand to improve only from Aug-Sep 2024. March saw lower MHCV dispatches by Tata Motors, which led to its mkt-share dropping to 44% vs the normalised share at 48%. On the other hand, Ashok clocked 32% share vs the normalised 30%. LCV industry volumes declined 11% YoY and ended FY24 with 3% decline.

PV industry growth moderates to 8%:

PV industry wholesales grew 8% YoY in Mar’24. Mgmt commentary indicates softness in retail demand in March. However, lower-than-normal dealer inventory allowed OEMs to continue high dispatches. Industry participants have hinted at sub-5% industry growth in FY25. Maruti’s Mar’24 mkt-share was largely stable at ~42%. Tata’s share is range-bound at 13.5-14.0%. M&M’s SUV volumes came off to 40k, closer to retail demand.

Tractors down ~25% YoY in Mar:

Tractors declined ~25% YoY in Mar’24 and ended FY24 down 7-8% YoY. Although the end-demand has been weak, the rate of decline was magnified in March, due to a shift in the festive calendar (high base in March 2023).

Domestic 2Ws up ~15% YoY; 2W exports growing on low base:

Analysts of IIFL Capital Services estimate the 2W industry wholesales to have grown ~15% YoY. Retail registrations, as per Vahan were up only 5% YoY. However, an easy base (due to destocking last year) led to YoY growth in wholesales being much higher than retail growth. Among listed 2W players, growth was the strongest for Bajaj. Honda also reported 81% YoY growth (base effect). Hero clocked YoY decline (again, base effect). Coming to 2W exports, Bajaj and TVS saw a strong YoY growth as the low base is catching up. TVS’ 2W exports had seen a spike in Feb, but came off MoM in March.