Auto: 2W, PV strong but CV, Tractors stay weak

4 Mar 2024 , 11:20 AM

Auto industry saw a mixed performance in Feb 2024. Consumer segments (2W, PV) were strong, but CV and Tractors were weak. PV industry grew 12% YoY, as destocking in Nov/Dec created room for higher dispatches (wholesales > retails). 2W industry volumes grew ~35% YoY; the growth rate is higher than retail growth of 12%, as there was de-stocking in the base (Feb 2023). MHCV industry volumes declined 4% YoY, with SAAR coming in weak at 360k vs FY24 volume of 375k. This also casts doubts on growth in FY25. LCV segment declined 2% YoY; the segment has been weak since the beginning of 2023. Tractors were down ~18% YoY, due to weak demand in the festive period and high dealer inventory. Overall, analysts of IIFL Capital Services see downside risk to volume estimates in CV and tractors, and slight upside risk in 2Ws. 

MHCV and LCV decline YoY: MHCV industry declined 4% YoY in Feb; YoY growth has been weak since Nov 2023. MHCV SAAR stood at ~360k in Feb vs FY24 absolute volumes at 375k. Analysts of IIFL Capital Services recently cut their FY24 MHCV growth estimate from 10% to 6%; this may see further cut. Since current SAAR is lower than FY24 volumes, it casts doubts on growth in FY25. MHCV mkt-share is largely stable, with Ashok at ~31% and Tata at ~47%. LCV industry volumes declined 2% YoY. On YTD basis, LCV industry is down 2% YoY, worse than analysts of IIFL Capital Services forecast of 0%.

PV industry strong after destocking in Nov/Dec: PV industry grew 12% YoY in Feb’24. The higher-than-normal dealer inventory at the end of the festive season was cleaned up in Nov/Dec; creating room for higher dispatches in Jan/Feb. Maruti’s Feb’24 mkt-share was slightly better MoM, at 43%. Tata’s share is range-bound at ~13.5%. M&M’s SUV volumes sustained at 42k; although Feb retail registrations were lower. 

Tractors down ~18% YoY in Feb: Tractors declined ~18% YoY in Feb’24. The deficient monsoon has led to moderation in end-demand. Analysts of IIFL Capital Services recently cut FY24 Tractor industry forecast to -5%; further downside exists. 

Domestic 2Ws up ~35% YoY; 2W exports see sharp recovery for TVS: 

2W industry grew ~35% YoY. Analysts of IIFL Capital Services estimate volume growth at retail level to be about 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 5% YoY in domestic volumes. Coming to 2W exports, Bajaj saw a moderate YoY growth of 8%. TVS saw a sharp jump in 2W exports (+117%). TVS’ 2W exports were weak in Jan; Feb has over-compensated (+60% MoM). Analysts of IIFL Capital Services need to see if such high levels sustain.