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Jun’21 volumes beat estimates; expect further improvement in Q2FY22

* Jun’21 volumes were above estimates due to a pick-up in retails in last 1-2 weeks of the month. We expect volumes to further improve in Q2FY22 due to the easing of lockdowns and pent-up demand. We remain positive on the Automobile sector and our top picks among OEMs are TTMT (TP: Rs410), AL (TP: Rs155) and EIM (TP: Rs3,180). In Ancillaries, we like MSS (TP: Rs325), APTY (TP: Rs290) and BHFC (TP: Rs830).

* Domestic Tractor volumes were above estimates. Volumes grew at a robust pace of 31% yoy for MM and 13% yoy for ESC. MM’s growth was higher due to a favorable base. Despite the strong start to the year, we expect a volume decline in FY22, led by a high base and lower government subsidies.

* Domestic PV industry volumes increased to around 255,700 units, implying a 6% CAGR over Jun’19. We have compared volumes with Jun’19 numbers. Two-year CAGR was 34% for TTMT and 7% for MSIL, while MM saw a decline of 5%. We expect further improvement in Q2FY22, driven by the easing of lockdowns, pent-up demand and low dealer inventories.

* Domestic 2W volumes were subdued, but exports were robust due to healthy demand and stable forex rates in key geographies such as Latin America and Africa. Domestic volume 2-year CAGR was -12% for BJAUT, -15% for HMCL, -19% for EIM-RE and -20% for TVSL. In comparison, 2-year export volume CAGR was 27% for TVSL and 1% for BJAUT. We expect improvement in domestic demand in Q2FY22, while export demand is likely to remain elevated.

* CV industry volumes fell but beat estimates. Two-year domestic volume CAGR was - 12% for MM, -26% for TTMT, -30% for AL and -35% for EIM-VECV. We expect demand to improve ahead on better macros, recovery in replacement demand and infra spending.

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