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UVs continue to outperform; 2Ws grow on a low base

Overall Feb’24 dispatches exceeded expectations for all segments, except tractors. PV wholesales grew 17% YoY, led by healthy demand in UVs (up 39% YoY). 2W domestic wholesales increased 21% YoY, while exports grew 36.5% YoY (+26% MoM), albeit on a low base for both categories. CV volumes remained flat YoY, with MHCVs down 6% YoY and LCVs up 5% YoY. Tractor volumes declined 16% YoY due to weak sentiment in the agri sector. The recovery in the domestic 2W segment should continue on the back of healthy demand and new launches focusing on premiumization. CV demand is expected to pick up after elections as the government will continue to focus on infra related activities. Tractor demand would remain challenging in the near term.

2Ws (above est.) – Dispatches grew 24% YoY: Overall 2W dispatches were above est., led by HMCL/TVSL/RE. BJAUT was in line with est. Wholesales for HMCL/BJAUT/TVSL/RE grew 19%/25%/34%/6% YoY. Domestic and export dispatches grew 21% YoY and 36.5% YoY (+26% MoM), respectively. Domestic demand has been healthy; however, strong export growth sequentially, despite challenges, surprised positively. BJAUT/TVSL/HMCL/RE exports improved 8%/98%/91%/13% YoY, albeit on a low base.

PVs (above est.) – Dispatches rose 17% YoY (UVs up 39% YoY): Volumes stood at 197.5k units for MSIL (up 15% YoY) and 51.3k units for (up 19% YoY). MM UVs (incl. pickups) grew 22% YoY to 63.9k units. UVs continue to perform well on the back of stable demand and execution of order backlogs, while demand for entry-level cars remains subdued. MSIL’s exports grew 68% YoY (+21% MoM), the highest in a month in FY24YTD.

CVs (above est.) – Dispatches remained flat YoY: MHCV volumes declined ~6% YoY, while LCVs volumes grew 5% YoY. TTMT/AL volumes declined 4%/6%, while VECV volumes grew 2% YoY. We believe CV demand will remain subdued until elections and would see a gradual pickup thereafter.

Tractors (below est.) – Dispatches down 16% YoY: MM/ESC volumes declined 16%/17% YoY. As per M&M, “Southern and western states continue to face agri stress due to erratic and deficient monsoon. However, Rabi crop outlook is very good, with wheat crop likely to be a bumper crop. Harvesting has started in few states with the government supporting early procurement of wheat crop. Continued government support through various rural schemes and enhanced institutional credit will further help boost tractor demand going forward.” As per ESC, “Tractor sales dipped this month due to the continuing impact of uneven monsoon coupled with insufficient rainfall and diminished reservoir levels, which impacted the Kharif output. Anticipated improvements in the Rabi harvest and early signs of a normal monsoon next year are projected to enhance overall sentiments and drive an uptick in tractor sales in the next fiscal year.”

Valuation and view: We are positive on the PV segment as it is expected to see better earnings growth, led by improved mix. While the 2W segment is expected to outperform other segments with high-single-digit volume growth, most of the growth seems already priced in the recent run-up of stocks. Also, we expect CV growth to moderate in the near term due to elections and then pick up in H2FY25. MM and MSIL are our top OEM picks. Among auto component stocks, we prefer ENDU and CRAFTSMA.

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