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… 2W OEMs increase discounts to push volumes

* Demand momentum in Jan’21 sustained in Feb’21 across segments. Discounts were lower as Feb’20 had BS-VI transition-related discounts. Inventory is much lower than normal for PVs and Tractors, leaving headroom to fill inventory in the coming months. Wholesales are expected to grow for replenishing abnormally low inventory for PVs and Tractors.

* Our interaction with leading industry channel partners reflects optimism (excluding 2Ws). Weak demand results in higher 2W inventory (30-45 days). However, PV inventory remains at minimal levels (less than 10 days), with a waiting period of 4-6 weeks in fast-selling models. M&HCVs continue to grow on the back of strong demand from Infrastructure/Construction, while the Cargo segment is recovering slowly with an increase in capacity utilization. Demand for Tractors remains strong, with inventory at 10-30 days.

* Wholesales in Feb’21 are expected to grow YoY on a low base for all segments, excluding 3Ws. In Feb’21, wholesale volumes are estimated to grow at 13% for 2Ws, largely driven by exports, and 20% for PVs due to supply-side issues. CV volumes are likely to grow by 37% (LCV growth of 58%, M&HCVs by 17%). Wholesale volumes for Tractors are expected to grow by 27% YoY on robust demand.

* 2Ws: Demand for Entry-level models remained subdued, whereas the Premium segment saw some recovery. Feb’21 had just one auspicious day for weddings v/s 10 days in Feb’20. The pain will continue till mid-April. OEMs increased discounts for Entry-level models to push sales. BJAUT offered discounts of INR3k/INR5k/INR2k on CT100/Platina/Pulsar Drum brake model. The same for HMCL stood at INR1-2k. Dealers are holding inventory of 1-1.5 months. The waiting period for REs has reduced to 1-2 weeks for Classic/Bullet, while Meteor has a waiting period of 8-12 weeks. We expect ~18.6% growth in wholesales for BJAUT’s 2Ws (6% growth in domestic 2Ws), 14% for TVSL, 10% for HMCL, and 7.5% for RE.

* PVs: The strong demand momentum continues in PV. However, retail sales were restricted by supply-side challenges. PVs have a higher waiting period across OEMs. TTMT continues to benefit from a refreshed product portfolio and recent launches. There is increased interest in its fitted CNG models due to higher petrol prices. Volumes for MSIL/MM/TTMT are expected to grow by ~13.4%/30%/120%.

* CVs: Demand for M&HCVs from the Infrastructure segment remains strong. The Cargo segment is also recovering, albeit slower than expected. Discounts have fallen by 2-3% to 13-15% due to strong demand and a shortage of certain models (in the high tonnage segment). Moreover, our channel check suggests that OEMs are refraining from a price war to increase sales. Financiers have relaxed credit terms and increased LTV to 85-90%, leading to an increase in inquiries and conversions. Higher tonnage segments continue to dominate due to greater demand from the Infrastructure segment. LCV and SCV demand continue their growth momentum. Launch of AL’s Bada Dost in the remaining parts of India would further boost LCV sales. We expect AL’s wholesales to grow by 21.7% YoY (6% for M&HCVs) and that for TTMT to grow by 31% (25% for M&HCVs and 35% for LCV).

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