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2W, PV impress; CV, tractors weak in Auto sector: IIFL Securities

2 Feb 2024 , 10:39 AM

Tractors were down ~15% YoY, due to weak demand in the festive period and high dealer inventory, following sub-optimal rains.

Auto industry saw mixed trends in Jan 2024, with strong growth in 2W, PV, and weakness in CV, tractors. PV industry bounced back strongly with ~16% YoY growth, as destocking in Nov/Dec created room for higher dispatches. 2W industry volumes grew ~22% YoY; the growth rate is higher than retail growth of 10- 12%, as there was de-stocking in the base (Jan 2023). MHCV industry volumes declined 2% YoY, with SAAR coming off sharply to ~350k, vs ~410k in Dec. LCV segment declined 5% YoY; the segment has been weak since the beginning of 2023. Tractors were down ~15% YoY, due to weak demand in the festive period and high dealer inventory, following sub-optimal rains. Overall, analysts of IIFL Securities feel risk to volume estimates in CV and tractors is to the downside, while 2W may see a small upside. 

MHCV and LCV on weak trajectory: 

MHCV industry declined 2% YoY in Jan; YoY growth has been weak since Nov 2023. MHCV SAAR collapsed to ~350k, from ~410k in Dec. analysts of IIFL Securities see significant risk to their forecast of 10% growth in FY24. MHCV mkt-share is largely stable with Ashok at ~30.5%, Tata at ~46.5% and VECV at ~19.5%. LCV industry volumes declined 5% YoY. On YTD basis, LCV industry is down 2% YoY, slightly worse than analysts of IIFL Securities forecast of 0% for FY24. 

PV industry bounces back after destocking in Nov/Dec: 

PV industry grew 16% YoY in Jan’24. PV industry ended the festive with higher-than-normal dealer inventory. This forced OEMs to cut production in Nov/Dec. Since the industry ended Dec with low dealer stock (Maruti was at 1 week), it created room for higher dispatches in Jan. Maruti’s Jan’24 mkt-share bounced back to 42% from a low of 36% in Dec (production shutdown). Tata’s share is range-bound at ~13.5%. M&M’s SUV volumes improved to 43k, in line with preceding months (excl. Dec, which was weak). 

Tractors down ~15% YoY in Jan: 

Tractors declined ~15% YoY in Jan’24. The deficient monsoon has led to moderation in end-demand. We currently forecast 0% growth for Tractors in FY24; however, analysts of IIFL Securities now see significant downside risk to their estimate. 

Domestic 2Ws up ~22% YoY; 2W export recovery slower than expected: 

2W industry grew ~22% YoY. Analysts of IIFL Securities estimate volume growth at retail level to be 10-12%. However, an easy base (due to destocking last year) led to YoY growth in wholesales being much higher than retail growth. Among 2W players, growth was strong for Hero, Bajaj and TVS. Royal Enfield (RE) continued to stand out with weak growth of 4% YoY in domestic volumes. 2W/3W exports have bottomed out, the improvement is gradual. Bajaj and TVS saw YoY growth (low base) but saw sequential drop in 2W exports.

Related Tags

  • auto sector
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19 Feb 2024   |   09:29 AM
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