Published on 4/07/2022 11:48:58 AM | Source: LKP Securities Ltd

Auto Sector Update - PVs and CVs continue their strong run - LKP Securities

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

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PVs and CVs continue their strong run

Sector performance - June witnessed strong performances from all the auto majors in the PV and CV segments sequentially as well as on a yoy basis. However, tractors declined on a high base of last year. CV sector continued to shine as its underlying drivers are very much in place. PVs have a strong order book but supply concern still prevails. Interestingly, the chip shortage is resolving at a good pace now and is expected to get resolved by the festive season. New launches coupled with existing demand are expected to act positively on the PV sector. The marriage season in rural parts of North India yielded some positivity in 2W sales. Sentimentally too we see 2W demand moving up. Low base of last year is also helping. Tractors segment after a weak FY 22 has seen a strong surge in numbers in June on a sequential basis. However, we saw yoy decline in tractor sales as there was a ban on exports of various food grains like wheat, sugar etc in May and the base of June was too high.


Company wise performance - Among the PV OEMs, MSIL posted yoy fall of 0.4% in the domestic markets which was driven by a 17% drop in the entry level segment of Alto and Wagon-R, while the UV segment fell by 33.1%. However, the compact hatchbacks, vans and exports arrested the decline as a result the total domestic sales remained flattish. Exports growth was seen at 40% as we are witnessing developing markets evolving for the entry level car segment and also for Maruti’s export product - Jimny.

TaMo’s PV segment saw a 4.3% mom growth on continued success of its EV Nexon, Harrier and their new launch of SUV ‘Punch’ last year, while the yoy growth was at 87%

M&M’s SUV segment jumped by 60% yoy on the success of Thar, XUV 7oo, pick-ups and Bolero Neo and the newly launched Scorpio N. It also indicates easing of the chip shortage. CV division posted growth of 61% yoy as smaller LCVs zoomed by 60%. M&M’s tractor business in the domestic markets degrew by 15% yoy on high base while increased 16.6% mom. Even Escorts Kubota witnessed a similar trend as its sales expanded by 20.8% mom while declined by 20% yoy. Going forward, as monsoon revives we foresee a good sequential growth for tractors in the ensuing months.

The M&HCV segment saw a strong yoy as well as sequential growth for both the companies. The macro indicators like construction, mining, real estate and farming sectors are very well in place. Also freight availability has been increasing and infrastructure activities are on an up-move given the capex kicker provided by GoI during the union budget

In 2W segment the performance was sluggish in the domestic markets as far as motorcycles are concerned. Bajaj reported a de-growth of 19.6% yoy for its domestic motorcycles while in exports, motorcycles they grew by 23.2 yoy. TVS 2W segment reported growth of 13.9% out of which motorcycles declined by 0.5%, while scooters expanded by 95%. For Bajaj, its 3W segment moved up by 114% yoy domestically. Exports 3Ws dipped by 39% mom on SL and Egypt concerns. Hero Motocorp reported 3.3% growth yoy in June.


Our view - We remain positive on the entire automobile sector. Our choice is in the following order - CVs, PVs and 2Ws. Stocks specifically, within the 2Ws, we like Bajaj Auto as we believe the upcoming months to report good growth in domestic as well as exports on the back of recovery in the domestic markets, new launches and exports revival, especially in Africa and Latin America. We even like Hero on its domestic strength and then TVS for its volume excellence and margin revival. While on the PV side, we believe MSIL is facing the supply side brunt more than others and is losing out on market share. However its focus on CNG is yielding good results though it is delaying its EV plans. With new launches coming up, huge order book and their EV plus Hybrid plans now in place, we believe the upcoming quarters to be quite good for MSIL. We also like M&M because of its thrust on rural markets through its leadership in tractors business, prudent capital allocation and a robust growth strategy in UVs, EVs and CVs. We like Ashok Leyland within CVs as it has a diversified revenue base deriving from LCVs, Defense, MHCVs and spares. Also the recovery and growth in its monthly numbers is thick and fast. Tata Motors is seeing a strong PV business, along with a very healthy revival in CVs and improvement in JLR business. Every dip in these stocks in the short term (driven by higher input costs, supply chain issues etc), shall provide good opportunities for investors to enter into them from medium to long term perspective.


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