Retails trailing wholesales in Indian Auto OEMs segment: IIFL Capital Services

17 Jul 2023 , 11:06 AM

In this note, analysts of IIFL Capital Services compare wholesale volumes reported by Auto OEMs to underlying retail registrations, reported on the Government’s Vahan portal. They find that in most cases underlying retail registration volumes are tracking below reported wholesales. This implies inventory levels have increased compared to levels at the end of FY23. It reduces scope to increase dealer inventory further, especially as festive season is delayed this year by three weeks compared to 2022. Moreover, weak retails also cast doubts on sustainability of reported wholesale growth in coming months. Analysts of IIFL Capital Services expect Maruti, M&M (UV), Tata (PV), Eicher and Bajaj to see sharp moderation in YoY growth in coming months. In case of few OEMs (e.g. Maruti), achievability of FY24 estimates are at risk.

End-demand tracking below wholesales for most OEMs: 

A comparison of retail registration data with wholesales reported by OEMs show that end-demand is tracking lower. Analysts of IIFL Capital Services have done this exercise for PV and 2W/3W due to high reliability of Vahan registration data for these segments. As Vahan does not capture registrations in the State of Telangana, they have adjusted registration volumes upwards to account for this. They find that retail registrations are tracking below wholesale volumes in case of Maruti, M&M (UV), Tata (PV), Eicher and Bajaj. 

Increased inventory and delayed festive season leave less scope for dealer stocking, in coming months:

As retails have been weaker than wholesales, dealer inventory would have increased for above OEMs in recent months. This does not leave much scope for OEMs to stock up inventory with dealers in coming months. Analysts of IIFL Capital Services also note that festive season is delayed this year compared to 2022 by about three weeks. This will push out “pre-festive dealer stocking” into late Sep and Oct. 

Asking rate for remaining 9 months increasing; may lead to cuts to FY24 volume estimates: 

Weaker than expected retails and increase in inventory levels mean that we will need to see strong pickup in end-demand in coming months to meet FY24 Street estimates. Analysts of IIFL Capital Services see this becoming a challenge especially for Maruti and possibly, Eicher.

Both Maruti and M&M have quoted high order-book numbers. However, analysts of IIFL Capital Services believe these order-books and waiting periods are limited to a few models, with demand for remaining models on the weaker side. For Eicher (Royal Enfield), we await sustainability of volumes, especially after influx of new competition (Harley-Davidson, Triumph) in its core premium motorcycle segment.