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Sector performance - The base month of December 21 showed improvement on the back of pent up demand post pandemic. Therefore the base is slightly high just before Omicron hit the globe. Therefore, sectors such as two wheelers reported muted growth in the domestic markets. Exports performance has been weak for past few months now, and a similar story was observed in December. On the PV side of the industry as well, the sector posted dismal performance both sequentially and yoy on seasonality and biannual maintenance work at manufacturing facilities (MSIL). Also the semi-conductor shortage continued up to some extent impacting vehicular production in PVs. However this fall was quite more as compared to the 2W sales dip. On the other hand, M&HCVs which have all their underlying parameters in place posted resilient numbers sequentially, while the LCVs faltered on high base. Tractors segment has been reporting unstable growth over the past few months. In the month of December, we saw the strong mom decline while on a yoy basis, tractors posted robust growth.  

Company wise performance - Among the PV OEMs, MSIL posted de-growth of 9.9% yoy. On mom basis, sales were down by 16% as the small size segment declined by 47%, while the UV segment grew a bit by 1.4% mom on success of All New Brezza and Grand Vitarra model variants. Even the compact segment posted 17% yoy and 21% mom dips. In the exports markets as well the company posted a 2.2% fall yoy, while grew 10% mom. TaMo’s PV segment saw a 13% mom fall. On yoy basis, TaMo’s PV sales grew by 14%. M&M’s SUV segment as well narrowed down by 6.3% mom, while grew by 62% yoy, bucking the trend. CV division posted de-growth of 2.5% mom while growing by 26% yoy. M&M’s tractor business in the domestic markets plummeted by 26% mom and grew 30% yoy. Similarly, Escorts Kubota’s domestic tractor sales too contracted by 32% mom while grew 22% yoy.

In 2W segment Bajaj reported a de-growth of 1.6% yoy and 1.6% mom growth for its domestic motorcycles while in exports, motorcycles grew by 12.4% mom, while fell by 36.4% yoy. TVS 2W segment reported mom drop of 3.3% as motorcycle segment degrew by 6.7%, while scooters fell by 8% mom, while jumped by 13.77% yoy on higher e-scooter I-Qube sales. Mopeds de-grew by 25% mom and 23% yoy. For Bajaj, its 3W segment moved down by 21% mom while grew 26% yoy domestically on a good yoy pick up in 3W sales, mainly by the CNG portfolio and e-3Ws. Exports 3Ws however de-grew by 55% yoy and 25% mom. Hero Motocorp witnessed a flattish sales growth both mom and yoy as it is not much export oriented.

Our view - We believe December was sequentially low due to high base of November and it being a seasonally weak month. However, we believe the fourth and the last quarter of the year to witness stronger growth in the PV segment as the chip shortage issue eases further and new launches on both ICE and EV sides do take place. Seasonally too, Q4 is a good quarter. 2Ws shall further gain strength on low base of last year, EV launches and good monsoon leading to better rural demand on the back of solid Rabi crop. CVs are already continuing with their good run. Tractors shall report a decent growth this year on good monsoon, Rabi sowing and improvement in the rural economy.

We remain positive on the entire automobile sector. However, our choice is in the following order - CVs PVs and 2Ws. Stocks specifically, within the 2Ws, we like Hero Motocorp as we believe it is almost free from the exports weakness and is also led by strong monsoons barring a few eastern states, improvement in rural economy and upcoming EV launches. While on the PV side, we 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, exports and spares. Every dip in the stocks mentioned above, shall provide good opportunities for investors to enter into them from medium to long term perspective.

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