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Sector performance

The month of April was a mixed bag for the auto companies. 2Ws barring Bajaj Auto have shown a weak performance yoy, after few months of positive domestic performance. 2W exports have shown a continuous trend of massive declines and a similar story was observed in April as well, since Africa is not yet out of the woods. On the PV front, all the companies have posted strong growth. On the CV front, we saw a solid fall in M&HCV segment for both Tata Motors and Ashok Leyland especially on sequential basis. This was the result of pre-buying seen in March just before the BS-VI Phase 2 implementation in April, which would make the vehicles dearer. Tractors segment in the month of April witnessed a double digit fall on unseasonal rains disturbing Rabi crop.

Company wise performance

Among the PV OEMs, MSIL has posted growth of 10.5% yoy in April. This growth came on the back of the twin launches of new Granda Vitarra and Brezza in the earlier months. Also the easing up of chip shortage led to pent up demand. Small cars in April de-grew by 17.7% yoy and 21.8% mom. The UV segment grew 8.3% yoy and fell by 1% mom on success of the 2 model variants mentioned above. The newly launched SUV Fronx and upcoming launch of the 5-door Jimny shall show their impact in May numbers. Even the compact segment posted 27% dip yoy and 4.3% mom growth. In the exports markets however, the company posted a massive fall both yoy and mom. TaMo’s PV segment saw a 6.5% mom and 13% yoy growths. M&M’s SUV segment on the other hand, jumped up by 56.5% yoy while fell by 3.5% mom. CV division posted a decent growth of 14.3% yoy and drop of 14.4% mom on the reasons stated above. M&M’s tractor business in the domestic markets dropped by 10.2% yoy and grew by 5.3% mom. Similarly, Escorts Kubota’s domestic tractor sales de-grew by 5.5% yoy and 24.5% mom.

In 2W segment Bajaj reported an improvement of 95% yoy and 19.4% mom rise for its domestic motorcycles while in exports, motorcycles de-grew by 43.7% yoy and grew by 12.1% mom. TVS 2W segment reported 5.3% yoy growth of which motorcycle segment grew by 9.6% yoy and 7.9% mom, while scooters grew by 5.2% yoy, on higher e-scooter I-Qube sales. Mopeds de-grew by 10% yoy and 6.8% mom. For Bajaj, its 3W segment moved up by 49% yoy while de-grew 2.9% mom domestically on a good pick up in 3W sales, mainly by the CNG portfolio and e-3Ws. Exports 3Ws however de-grew by 40.6% yoy and grew by 15.7% mom. Hero Motocorp posted weak performance last month as sales de-grew by 5.4% and 23.7% mom

Our view We witnessed a softer April for 2Ws, MHCVs and tractors. PVs witnessed a faster easing of chip shortage issue in April, who we expect to witness going forward too, while 2Ws should gain strength on low base of last year, marriage season and EV launches, while unseasonal rainfall and hailstorms would harm the Rabi crop thus jeopardising rural income. Also the impact of expected El Nino needs to be seen on the rural centric segments. CVs may witness a temporary dip on the back of BS VI phase-2 implementation, while underlying strength would keep the going strong. Tractor industry growth needs to be monitored as well on expected El Nino setting up in the coming monsoon.

We remain positive on the sector. However, our choice is in the following order –PVs, CVs and 2Ws. Stocks specifically, within the 2Ws, we like Bajaj Auto as we expect bounce back of exports 3-4 months down the line as $ scenario may improve in Africa. Also the EV strength gaining from Chetak and upcoming launch of e-3W can be additional positives. TVS too looks good with its dominance in EV scooters and solid performance by its new 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 also like MSIL on the PV side. We like Ashok Leyland within CVs as it has a diversified revenue base deriving from LCVs, Defence, 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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