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December’21 wholesales: In line across segments, except Tractors

2Ws slightly better than our low estimates; the momentum in PVs/CVs sustains

2W (excluding BJAUT) wholesales were above our low expectations, whereas the same for PVs/CVs/3W were in line. Tractor volumes were weak as OEMs focus on correcting inventory. The recovery in PV wholesale dispatches continued in Dec’21 due to easing of semiconductor shortages. 2W dispatches improved sequentially, while CV demand has sustained. Among 2Ws, HMCL/RE was above our estimate, while TVSL was in line. 2W (excluding BJAUT)/Tractor volumes declined by ~9%/24% YoY (+7%/-34% MoM), whereas PV/3W volumes grew 6%/8% YoY (9%/4% MoM). CV volumes (excluding AL) were flat YoY (+9% MoM).

* 2Ws (excluding BJAUT) – above our estimate, down 9% YoY (+7% MoM):

Attractive schemes offered by OEMs to dealers have resulted in a sequential improvement in wholesales for HMCL. Retail demand continues to remain tepid for the overall industry. Volumes declined by 12%/9% YoY (+13%/-9% MoM) for HMCL/TVSL. Wholesales for RE improved by 7% YoY (43% MoM), reflecting an easing of supply chain issues for RE

PVs – in line, grew 6% YoY (9% MoM): 

Dec’21 wholesales indicate easing of semiconductor shortages for MSIL (in line), where volumes declined by just 4% YoY (+10% MoM). MM (UVs including Pickups; below our estimate) volumes grew 14% YoY (-2.5% MoM). TTMT’s PV (above our estimate) volumes continued its strong showing with a growth of 50% YoY (18% MoM).

CVs (excluding AL) – in line, flat YoY (+9% MoM):

M&HCV volumes were above our estimate, while LCV volumes were below our estimates. M&HCV volumes grew 13% YoY (18% MoM), while LCV volumes declined by 11% YoY (+2% MoM). TTMT’s CV (in line) volumes grew 4% YoY (6% MoM). VECV (above our estimate) volumes grew 26% YoY (51% MoM).

Tractors – below our estimate, down 24% YoY (34% MoM): 

Volumes declined by 24% YoY (34% MoM) due to the focus of OEMs on inventory correction. MM/ESC’s Tractor volumes declined by 18.5%/39% YoY (34% each MoM).

Valuation and view:

While easing semiconductor supplies support PV wholesales, the 2W segment is yet to recover amid a high cost of ownership. We prefer 4Ws over 2Ws on the back of strong demand and offer a stable competitive environment. We expect the momentum in the CV cycle to continue. We prefer companies with: a) a higher visibility in terms of a demand recovery, b) a strong competitive positioning, c) margin drivers, and d) balance sheet strength. MSIL and AL are our top OEM picks. Among Auto Component stocks, we prefer BHFC and APTY. We also like TTMT as a play on a global PV recovery.

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