Moderate growth despite inventory filling in Indian auto sector: IIFL Capital Services

4 Sep 2023 , 11:09 AM

Auto industry volume growth was in the 0-10% range for most segments, in August. PV and 2W volumes were higher than analysts of IIFL Capital Services estimate for the month, as OEMs are filling dealer stock, despite a delayed festive season this year (by three weeks). PV volumes grew 10% YoY. Wholesale volumes for the listed players were 10- 20% higher than retail registrations, which implies that dealer inventory is continuing to increase. 2W industry volumes grew 2% YoY. Hero has taken the lead in inventory filling, while Bajaj and TVS are going relatively slow. Tractors were flat YoY, with deficient monsoon in August. LCV grew 4% YoY, an improvement from the recent trend of single-digit declines. MHCV was the strongest with 18% volume growth. MHCV SAAR at 375k is still lower than analysts of IIFL Capital Services FY24 volume estimate of ~400k. 

MHCV is the fastest-growing segment in Aug; LCV swings to small growth: 

MHCV industry grew 18% YoY in Aug’23. MHCV SAAR stood at 375k. The industry needs improvement from current levels 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 4% YoY; this is an improvement after four consecutive months of single-digit YoY decline. Analysts of IIFL Capital Services forecast zero growth for LCV in FY24. 

PV volumes grew 10% YoY, aided by continued channel stuffing: 

PV industry grew 10% YoY in Aug’23. Maruti’s Aug’23 market share stood at ~43% — similar to July. Tata came off to ~13% in Aug’23, lower than 14% in recent quarters. M&M’s UV volumes jumped to 37k, higher than recent average at 33-34k. The trend of “wholesales > retail registrations” continued in Aug, which means dealer stock is increasing. Reported PV wholesales for Maruti/Tata are 10-12% higher than retail registrations (Vahan), while it was 20% higher for M&M. 

Tractors flat YoY: 

Tractor volumes were flattish YoY in Aug’23, on an easy base of 2% decline in Aug’22. Deficient monsoon in August has led to moderation in the end-demand. Shift of the festive-season calendar by three weeks would have also led to delay in inventory filling with dealerships. If monsoon remains deficient, 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 2% YoY; 2W exports may clock YoY growth very soon: 

2W industry grew 2% YoY and 23% MoM (seasonal). 2W OEMs have started filling up inventory for the upcoming festive season. Hero, TVS and Honda grew single-digit YoY. Bajaj clocked 31% YoY decline in domestic 2W sales, due to high base in Aug’22 (chip shortage in Jan-Jul 2022). Royal Enfield’s domestic 2W volume growth came off to 10% after an average of ~40% in the preceding 12 months, as Hunter model has now entered the YoY base. Coming to 2W exports, industry saw 4-5% YoY decline in volumes in Aug. Rate of YoY decline in exports is moderating. Analysts of IIFL Capital Services expect YoY growth from Sep’23.