Auto sector: All eyes on the upcoming festive season

4 Oct 2023 , 10:18 AM

Auto industry volume growth was moderate in September. PV wholesale volumes grew ~2% YoY, while 2W industry volumes grew only 1-2%. Tractors were down about 10% YoY, hurt by deficient monsoon in August. LCV grew 5% YoY. MHCV was the strongest with 25% YoY volume growth. MHCV SAAR jumped to 420k vs 375k in Aug. SAAR needs to sustain at these levels for analysts of IIFL Capital Services full year estimate of 12% growth to be met. As analysts of IIFL Capital Services have highlighted previously, PV wholesales have been much higher than retails in the past 6-8 months, leading to significant inventory build-up. 2W inventory is also high heading into festive. For this high inventory to be absorbed, it is essential that retail volumes see strong YoY growth in the festive season (moderate growth is not enough). Else, OEMs would be forced to cut production in Nov-Dec to bring down the channel stock. 

MHCV is the fastest-growing segment in Sep; LCV reports small YoY growth: 

MHCV industry grew 25% YoY in Sep’23. MHCV SAAR shot up to 420k in Sep, vs 375k in Aug. The average SAAR in H1FY24 stood at 375k. Hence, Sep SAAR (420k) needs to sustain in H2FY24, to achieve analysts of IIFL Capital Services FY24 industry estimate of ~400k (+12% YoY). Ashok and Tata’s MHCV mkt-shares are quite stable, at 31-32% and 46-47%, respectively. LCV grew 5% YoY; this is an improvement after four months (Apr-Jul) of YoY decline. Analysts of IIFL Capital Services forecast zero growth for LCV in FY24 (H1FY24 was -2%). 

PV volume growth moderates to 2%: 

PV industry grew 2% YoY in Sep’23. Maruti’s Sep’23 mkt-share stood at 41.5% — lower than 43% in Jul/Aug. Tata came off to ~12.5% in Sep’23, from ~14% in recent quarters. M&M’s UV volumes jumped to 41k, higher than recent average at 35k. M&M’s SUV wholesales are much higher than retail registrations (Vahan). Analysts of IIFL Capital Services do not expect such high levels of SUV volumes to sustain. 

Tractors down about 10% YoY: 

Tractor volumes were down 10-11% YoY in Sep’23. The deficient monsoon in August has led to a moderation in end-demand. Shift of the festive-season calendar by three weeks would have also led to the delay in inventory filling with dealerships. If farmer sentiment does not improve soon, growth in festive season may be a challenge. Analysts of IIFL Capital Services forecast 5% growth for the Tractor industry in FY24.

Domestic 2Ws up 1-2% YoY; 2W exports may clock YoY growth very soon: 

2W industry grew 1-2% YoY and 12% MoM (seasonal). 2W OEMs have resorted to significant inventory-filling in Sep for the upcoming festive season. Hero and TVS clocked single-digit YoY growth. Bajaj clocked 9% YoY decline in domestic 2W sales, due to high base (chip shortage in Jan-Jul 2022). After an average YoY growth of 40% Sep’22 – Aug’23, Royal Enfield’s domestic 2W volume growth came off to 1%. Their model Hunter has now entered the YoY base. Coming to 2W exports, YoY decline in volumes has paused. TVS saw sequential improvement in 2W exports; Bajaj was flattish MoM.