Strong volume trends in auto sales, except tractors: IIFL Capital Services

3 Aug 2022 , 09:53 AM

MHCV on track to meet FY23 estimate; LCV may beat

MHCV industry grew 65-70% YoY (partly base effect), but declined 10% MoM in July 2022. Despite the MoM decline, MHCV SAAR stood at 325k in July 2022, which is in line with IIFL Capital Services’ FY23 volume forecast. Ashok Leyland, which lost share in April-December 2021 (25% MHCV share), is consistently clocking ~30% share thereafter (January-July 2022). LCV industry is surpassing expectations. Current SAAR of 680k implies significant upside to IIFL Capital Services’ current forecast of ~600k (+25% YoY).

PV industry ramping up well

Analysts at IIFL Capital Services estimate the PV industry to be up 16% YoY and 6% MoM in July 2022. Maruti has clawed back to 42% market-share, after slipping below 40% in June 2022 (1-week biannual production shutdown in June 22). Tata’s market share stood at ~14% versus 12% in FY22. M&M has seen good ramp-up in UV volumes, at ~28,000 (versus average monthly volume of 18.6k in FY22).

Tractors decline YoY in July 2022, as demand has weakened

Tractor industry grew 41%/47% in April 2022/May 2022, due to a low base and high cash flows to farmers owing to wheat exports (recently banned). In June 2022, as the YoY base normalized, industry volumes declined ~14% YoY. The YoY decline continued in July 2022 at 15-17%. Escorts management guided to YoY decline in August 2022 as well. In September 2022, the industry may see YoY growth due to earlier festive calendar this year; this would even out in subsequent months. Overall, IIFL Capital Services builds in 5% growth in FY23.

2 Wheelers: Wholesale higher than retails, led by festive inventory build-up

Analysts at IIFL Capital Services estimate 2 Wheeler wholesales to have grown 9% YoY and 5% MoM. Retails did see some sequential softening versus April-June levels. With dealer inventory at moderate levels and with the upcoming festive season, the industry has started building-up inventory. Analysts at IIFL Capital Services are hopeful of a pick-up in retails, heading into the festive season.