MENU

Published on 7/11/2019 10:31:28 AM | Source: LKP Securities Ltd

Green shoots driving retail demand...wholesale demand to follow suit with a lag effect - LKP Sec

Posted in Broking Firm Views - Sector Report| #Auto Sector #LKP Securities Ltd #Sector Report

Green shoots driving retail demand...wholesale demand to follow suit with a lag effect

Month of October witnessed both the festivals Dasera and Diwali bunching in the same month. As a result of this, the twelve month slowdown in the auto industry witnessed some pick up, mainly on the retail side. In the second half of September, as per various OEMs, the volumes of enquiries and footfalls at dealerships getting converted into buying saw a good increase. Most of the OEMs were busy selling the BS IV models and clearing the inventory. As a result of this, wholesale demand did not see a yoy increase, however, sequential growth was very strong for most of the manufacturers on festive demand. CVs, particularly M&HCVs still posted steep declines. The sector is plagued by various issues like increase in payload capacities under the implementation of new axle, lingering issues of financial crunch and high base. Any meaningful reforms coming on scrappage policy would bring up cheer to the sector. According to GOI, the chances of implementation of scrappage policy are very high and will be coming soon. On the PV front, we witnessed a good sequential pick up, while retail demand grew at low single digit. Green shoots were seen in the sector. However, couple of new launches led to a strong bounce back sequentially, as well as the wholesale yoy decline was not as bad as expected. In the 2W segment, a similar demand trend like the PVs was traced. Inventory days reduction, increase in discounts led to retail demand up-move..

Going forward, we believe November will see a sharp yoy decline as Diwali 2018 fell in November last year. The impact of excess rains in certain flood affected states in the country will be negative on rural income. Hence not much is expected from the khariff output. However, due to amply filled lakes, dams and reservoirs, rabi crop output is expected to be very strong, thus driving rural income from Q4 onwards. Hence, on a mom basis, we will be seeing a good improvement. This will have a positive impact on motorcycles, small cars & SUVs and tractors. BS VI pre-buying, higher discounts on BS IV models and low base of last year will lead to improvement in wholesale sales growth. Among two wheelers, we prefer Hero Motocorp as it is a proxy to the economy and rural growth, and an expected good rabi crop output will drive sales in rural India (55% of volumes). We also like Bajaj Auto which is now finding good traction in exports markets. On the PVs, we still like MSIL as it is a market leader in PV segment and has a wide array of models in all the segments. Its strength in the rural markets is also its positive. However, on valuations we find it expensive. We also like M&M, as robust monsoons will trigger UVs as well as FES growth. Within the CV space we like Ashok Leyland which is away from any global headwinds.

 

Hero MotoCorp

* Hero MotoCorp (Hero)’s sales in October went down by 18.4% yoy to 599,248 units on higher dealer level inventory stemming from NBFC issues, lower retail demand, weaker sentiments, increase in ABS related costs, rural distress and stifling competition. Though there were some green shoots visible by the end of September, they impacted retail demand positively. However, wholesale demand is still weak, as inventory clearing was priority.

* Sequentially also, there has been a decline of 2.1%..

 

Bajaj Auto

* Bajaj Auto’s total sales came down 13%/1.5% on yoy/qoq basis, to 463,208units, Domestic motorcycle sales have de-grown by 13.9% yoy and rose by 36.7% mom.

* Exports 2W business grew by 3.3% yoy.

* Total three wheeler sales went down by 13% yoy. In the domestic markets they decreased by 6% yoy Exports markets sales de-grew by a 20.7% yoy as regulatory changes in its biggest market Egypt and issues in Sri Lanka led to this fall. These weaknesses more than offset decent performances in Bangladesh and Nepal. Sequentially, there was a 5% drop in domestic sales while a 3% rise in exports. Total exports sales de-growth was at 1.2% yoy

 

TVS Motor

* TVS reported negative sales numbers in the month at 18.8% yoy. This was 2.4% rise mom.

* Motorcycle sales de-grew by 16.5% yoy while were up by 1.4% mom.

* Scooters sales went down by 19.6% yoy and rose by 2.3% mom. Mopeds went down by 26.3% yoy on weak consumer demand.

* 3W sales increased by 7.7% yoy on strong exports performance from markets like some of the African markets other than Egypt and SE Asia. Domestic markets de-grew by 11.1% yoy as there is a slowdown in new permits opening, while 3W exports grew by 10% yoy.

* Exports sales in TVS witnessed a robust 19.7% yoy growth as 3W exports went up by 10%.

 

Maruti Suzuki

* Maruti Suzuki India Ltd (MSIL)’s sales in the month of October came in at 153,435 units which was a dip of 3.9% yoy, while on mom basis the growth was an encouraging 25%. Huge discounts on various of its key models, BS IV inventory clean up and bunching up of festivals led to this kind of sequential growth.

* The petrol/small car segment this month saw a de-growth of 13.1% yoy and a handsome growth of almost 42.1% mom as the company is downsizing production of diesel vehicles, thus stimulating demand for petrol vehicles.

* The super compact segment comprising of Swift, Dzire, Celerio, Baleno, Ignis etc grew by 15.9% yoy and 31.3% mom on huge discounts within the segment..

* Ciaz segment sales were reported 86% down yoy and rose 38.3% up at 2,371 units.

* The UV segment grew brightly at 11.3% yoy while they grew at 7.3%% mom. The new launches of XL6 and S-Presso acted like a booster to the segment.

* The LCV Super Carry sold 2,429 units as compared to 2,152 units yoy. Sequentially they grew by 19.6%.

 

To Read Complete Report & Disclaimer Click Here

 

For More  LKP Securities Ltd Disclaimer  http://www.lkpsec.com/ 

 

Above views are of the author and not of the website kindly read disclaimer