October sees festive pop, but may not sustain in Auto sector: IIFL Capital Services

2 Nov 2023 , 11:19 AM

Auto industry volume growth was strong across the board in October; tractors being the only exception. PV wholesales grew 17% in Oct (YTD: 9%) and 2W growth was also strong at 21% (YTD: 7%). Both segments benefited from good off-take in the festive season. Yet, commentaries from OEM mgmts. do not instil confidence on such high rate of growth continuing through the year. Analysts of IIFL Capital Services expect PV growth to taper down in coming months, as OEMs would be forced to cut production (de-stocking). 2W industry has the benefit of low base in H2FY23; hence, double digit growth may continue in coming months. MHCV industry grew 19% in Oct (YTD: 12%) and LCV was up 12% (YTD: 0%). MHCV SAAR stood at 415-420k; MHCV SAAR needs to sustain here to meet analysts of IIFL Capital Services FY24 growth estimate of 12%. Tractors were down 4% YoY in Oct (YTD: -4%) due to deficient monsoon. 

MHCV stays strong enough to be on track for 12% growth forecast in FY24: 

MHCV industry grew 19% YoY in Oct’23. MHCV SAAR spiked to 420k in Sep and stayed at similar levels in Oct, much better than 370k SAAR in preceding 6 months. If current SAAR sustains, the industry should meet analysts of IIFL Capital Services FY24 estimate of 12% growth. Ashok’s MHCV mkt-share came off 200bp to ~29.5% in Oct from 31.5% in preceding months. LCV grew 12% YoY; this is an improvement compared to 2% YoY decline in H1FY24. Analysts of IIFL Capital Services forecast zero growth for LCV in FY24. 

PV growth strong at 17%, but destocking may be around the corner: 

PV industry grew 17% YoY in Oct’23. However, new order flow is slowing and dealer stock is high. Destocking is likely from Nov/Dec. Maruti’s Oct’23 mkt-share stood at 42.5%, in line with preceding months. Tata came off to ~12% in Oct’23, from ~14% in recent quarters. M&M’s SUV volumes jumped to 44k, vs. recent average at 35-37k. However, analysts of IIFL Capital Services note that retails (as per Vahan) have not kept pace with wholesales.

Tractors down 4% YoY:

Tractor volumes were down 4% YoY in Oct’23. The deficient monsoon 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 sales. If farmer sentiment does not improve soon, festive season may be challenging. Analysts of IIFL Capital Services forecast 5% growth for Tractor industry in FY24.

Domestic 2Ws up 21% YoY; 2W exports have bottomed out, but pick-up is slow: 

2W industry grew 21% YoY and 8% MoM (seasonal). The initial feedback on festive off-take has been positive. Unlike PV OEMs, 2W OEMs did not resort to channel filling till Aug 2023. As a result, analysts of IIFL Capital Services saw significant spike in monthly volumes in Sep/Oct. Among 2W players, Royal Enfield (RE) stood out with a mere 6% growth in domestic volumes. RE’s model Hunter has now entered the YoY base. 2W/3W exports have bottomed out but improvement is gradual. TVS had clocked sharp sequential improvement in Sep (outperformed Bajaj) but came off in Oct.