Volume growth stays weak in Indian auto segment: IIFL Capital Services

2 Aug 2023 , 10:25 AM

Volume growth across most Auto segments was muted in July2023. PV industry volumes grew only 3% YoY in July, despite wholesales being higher than retails (dealer stocking). 2W industry volumes declined 6% YoY, as OEMs are curtailing wholesales to match retails. Tractors grew only 9% YoY despite an easy base of -15% in July 2022. LCV volumes were down 3% YoY, in continuation of the recent weak trend. MHCV was the only segment with double-digit volume growth at 13%. MHCV industry has seen improvement in trend, after “reversal of pre-buy effect” hurt volumes in Apr and May. Based on these numbers, analysts of IIFL Capital Services believe that risk to FY24 volume projections, if at all, is to the downside. 

MHCV is the only segment to grow double-digit; LCV continues to decline YoY: 

MHCV industry volumes grew 13% YoY in Jul’23. MHCV SAAR, which had collapsed to 340k in Apr/May (due to reversal of pre-buy impact in Mar-2023), is now at 370k (although lower than 390k in Jun’23). This implies that analysts of IIFL Capital Services need good improvement from the current levels to achieve their FY24 industry volume estimate of about 400k volumes. Ashok and Tata Motors’ MHCV market shares are quite stable, at ~32% and ~47% respectively. LCV industry declined 3% YoY; this was the fourth consecutive month of YoY volume decline. They forecast zero growth for LCV in FY24. 

PV volumes grew 3% YoY, despite dealer stocking: 

Analysts of IIFL Capital Services estimate PV industry to have grown 3% YoY in Jul’23. They understand that the trend of “wholesales > retails” continued in July, which has pushed up dealer stock even further. Maruti’s Jul’23 market share stood at ~43% — similar to May, but higher than 41% in June (plant shutdown). Tata’s market share stood at ~14% in Jul’23, similar to FY23. M&M’s UV volumes jumped to 36k, higher than the recent months at 34k. 

Tractors grow 9% YoY on an easy base: 

Volumes grew 9% YoY in Jul-2023, on an easy base of 15% decline in Jul-2022. The 40% MoM fall in volumes is seasonal. Sentiment for tractor sales was mixed, as markets with normal rainfall saw good momentum, and markets with delayed/heavy monsoon saw soft demand. Analysts of IIFL Capital Services currently forecast 5% growth for the Tractor industry in FY24. 

Domestic 2Ws decline 6% YoY; 2W exports down in July but should start YoY growth from August: 

2W industry volumes declined 6% YoY and 3% MoM. Unlike PV OEMs, most 2W OEMs are curtailing wholesales to keep it in line with retail volumes and prevent “high dealer inventory situation”. Hero continued to underperform the industry with 12% YoY decline in domestic volumes. Royal Enfield’s high growth phase may be behind us as Hunter enters the YoY base from August. Coming to 2W exports, analysts of IIFL Capital Services saw 15-20% YoY decline in volumes in July. The rate of YoY decline in exports is moderating. They expect export volumes to start YoY growth from August 2023.