November 2017 volumes for all automobile companies across segments registered a strong growth, albeit on a low base (as Nov’16 was impacted by demonetisation), coupled with post festive season inventory re‐filling at the dealer level. While there was growth across segments, surge in CVs was particularly strong. With recovery in rural demand and positive consumer sentiment, supported by the demonetisation impacted low base, volume growth in the coming months is expected to be strong.
* Passenger vehicles (PV) – Growth momentum for Maruti/M&M/Tata Motors continues: MSIL’s domestic volumes were up 15% YoY, while export volumes remained flat in Nov 2017. The new Dzire, Baleno and Brezza continue to enjoy high waiting periods and ramp‐up of the Gujarat plant further aided growth. M&M’s UV segment registered 21% YoY growth on a low base. Tata Motors’ PV segment reported decent performance again this month with 35% YoY domestic volume growth on the back of new products received well (Nexon, Tigor).
* Two‐wheelers – Strong growth for HMCL; RE production ramping up: HMCL reported ~26% YoY volume growth, yet again registering over 600,000 units. Our dealer checks suggest that the company increased discounts in the scooter segment in Nov’17 and high dealer inventory. Royal Enfield (RE) at ~70K units was up 22% YoY. While the Classic 350 continues to enjoy two‐month waiting period as of now, RE is expected to ramp‐up its capacity to ~75,000 units per month by January 2018 which should boost volumes. On the other hand, domestic motorcycle volumes for BJAUT and domestic scooter volumes for TVS Motor were muted at 6% and 2%, respectively. However, three‐wheeler exports for both companies registered strong growth.
* CV – Strong growth on a low base: Supported by a low base, CVs saw strong growth on the back of strict overloading restrictions and better freight availability. M&HCV volumes registered strong growth, while LCVs too sustained their positive momentum. Ashok Leyland’s total volumes grew 51% YoY led by 54% YoY growth in M&HCVs and 45% YoY growth in LCVs. Tata Motors’ domestic CV volumes surged 72% YoY, while VECV volumes rose 55% YoY.
* Tractor volumes mixed: M&M’s domestic tractor volumes grew 32% YoY despite strong volumes in November 16, while Escorts volumes were up 6% growth YoY in Nov’17. We expect Tractor industry to register a ~14% growth in FY18.
* Our view: With the low base November onwards, volume growth for all companies is expected to be strong for the rest of the months this fiscal. In addition, with further recovery expected in rural demand on the back of the second consecutive year of normal monsoon, two‐wheelers and tractor volumes should benefit. However, given the pre‐buying in CVs in Q4FY17, CV growth can see moderation over the last quarter. We continue to prefer players with clear competitive advantages and waiting periods on key products. MSIL continues to remain our top pick.
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