FY23 exit rate implies low growth in FY24: IIFL Capital Services

5 Apr 2023 , 10:22 AM

Exit rate of volumes implies that growth rate will taper down substantially in FY24. Analysts at IIFL Capital Services currently forecast 5-15% growth across segments in FY24, but believe risk is to the downside. In March 2023, growth was highest in MHCV at 24% YoY. MHCV SAAR crossed 400k for the first time after October 2018. LCV industry was flat YoY, with SAAR 7-8% below FY23 volumes, hinting at a challenging FY24. PV volumes were up only 4% YoY. 2W grew 7% on an easy base of 21% decline in March 2022. Tractors are up 15% on a base of -14% in March 2022. March 2023 volumes may have varying impact on companies due to BSVI Phase 2 norms effective Apr-2023. There was pre-buying in segments such as MHCV, while few OEMs in other segments cut production/dispatches to adjust for the transition.

MHCV strong; LCV weak

In March 2023, MHCV industry grew ~24% YoY. MHCV SAAR shot up from an average 375k in December 2022-February 2023 to 410k in March 2023. If this SAAR were to sustain, it would imply a strong double digit growth in FY24. However, there is a possibility of pre-buy impact in March 2023 before BS-VI Phase 2 related price hikes take effect from April 2023. Hence, SAAR may moderate in April 2023. LCV industry was flattish YoY. Current LCV SAAR at 550k is much lower than industry volumes of 600k in FY23. This hints at a challenging outlook for LCV industry in FY24.

PV growth rate moderates sharply

Analysts at IIFL Capital Services estimate PV industry to be up 4% YoY in March 2023. Production adjustment due to BS-VI Phase 2 wouldn’t have been material, believe analysts at IIFL Capital Services. Unlike MHCV, there was no prebuy effect in PVs as price hikes in gasoline vehicles is minimal. Analysts at IIFL Capital Services estimate Maruti’s March 2023 market share at ~40%, which is ~200bps lower than recent months. Tata’s market share stood at ~13% versus ~12% in FY22. M&M’s UV volumes shot up to 36k versus 31-32k in recent months.

Tractors up about 15% YoY, on an easy base

Tractor industry volumes are up about 15% YoY in March 2023. This was on an easy base of 14% decline in March 2022. The YoY base will turn adverse in the coming months (April-May). Analysts at IIFL Capital Services expect industry to be down YoY in Q1FY24.

Domestic 2Ws up 7% YoY; 2W exports down YoY but bottoming out

2W industry volumes grew ~7% YoY in March 2023 on an easy base of 21% decline in March 2022. YoY growth in wholesales is much lower than the growth in retails (12-14%). March 2023 industry wholesales would have been much higher, if not for lower dispatches by Honda possibly due to production adjustment for BS-VI Phase 2 transition. Coming to 2W exports, analysts at IIFL Capital Services continue to see YoY decline in volumes. However, they believe 2W exports are bottoming out, coinciding with elections in Nigeria.