Demand looking up for PVs/2Ws
CV decline arrested MoM | Tractors fails to live up to expectations
Our interactions with leading PV/2W/CV channel partners indicate positive demand trends in 2Ws/PVs (v/s pre-festive period in 2019 and post-festive in 2018), stability in CVs but pressure in Tractors. However, compared to Nov’18, wholesales are likely to decline across OEMs (except RE) due to the timing difference (Diwali in Nov’18). Sentiment has improved compared to the pre-festival period (before Oct-19), despite an MoM reduction in discounts/offers. Wholesale volumes are estimated to decline ~9%/~12%/~10% YoY in 2Ws/PVs/Tractors. In CVs, volumes are expected to decline by ~11% in LCV and even higher by ~47% in M&HCVs. Barring MHCVs, inventory correction has led to comfortable inventory below 30 days across segments.
* 2Ws: Post-festive retails are likely to grow marginally YoY. Demand was positive in rural (particularly motorcycles in entry/executive segment) due to strong monsoon and harvesting season, but declined in urban areas. Majority of demand is driven by the ongoing marriage season. Strong festival sales resulted in inventory of <30 days. We expect wholesales to decline by ~4% for BJAUT (~13% decline for domestic 2W) and ~9% YoY for TVSL. HMCL wholesales are estimated to decline ~12%, while RE dispatches are expected to grow ~4% YoY to 68.5k units.
* PVs: Post-festive indicators have been encouraging on inquiries, conversion and retails. Discounts have reduced MoM but are higher YoY and at similar levels as Sep’19. Volumes are expected to decline ~9% YoY for MSIL and ~14% YoY for M&M’s UV (including pick-ups). TTMT’s PV volumes are estimated to come in ~38% lower YoY.
* CVs: High discounts and offers failed to revive sales, though retail volumes appear to have stabilized MoM. LCVs continue to do better than M&HCVs. Continued production cuts by OEMs led to manageable inventory at 30-35 days. We expect CV wholesales to decline by ~31% for TTMT (-49% for M&HCV) and ~33% YoY for AL (-51% for M&HCVs).
* Tractors: Contrary to expectations, tractor demand failed to catch up post the weaker Diwali season. This was also in contradiction with feedback on stronger rural demand in other segment. We expect tractor volumes to decline by ~10% YoY for M&M and ~9% YoY for Escorts.
* Trends in the demand environment for 2Ws and PVs are encouraging, particularly in the run up to BS6 transition. This was critical for justifying the outperformance of the auto sector. For the next 12-18 months, our preference remains for PVs over CVs/2Ws as the segment is likely to (a) be least impacted by BS6 transition and (b) face less risk of EVs and competition, in turn reflecting better earnings growth. Our top picks in autos are MSIL, TTMT and MSS among large-caps, and AL and ENDU among mid-caps.
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