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Muted Performance In PV/2W; CV Volumes Above Estimates

The automotive monthly sales were a mixed bag in Aug’21. Auto industry volumes (PVs and domestic premium motorcycle segments) were negatively impacted due to chip shortage in Aug’21. The negative impact is expected to continue in Sep’21. While demand sentiment in the domestic PV segment remained strong, the sales were impacted due to semiconductor chip shortages. The PV industry wholesale volumes reported growth of ~10% YoY from Aug’20 (but were down ~12% MoM).

Chip shortage adversely hit OEMs such as Maruti and M&M more than its peers While 2W volumes increased slightly over Jul’21, they are expected to decline by ~15% YoY due to weak demand coupled with higher-than-normal inventory levels.2W Exports continue to be a bright spot with both Bajaj and TVS reporting robust YoY growth.CV volumes registered a strong growth of ~37% YoY and continued their recovery path. Tractor volumes recorded a YoY de-growth in the range of ~17-18% due to a higher base of last year but the underlying fundamentals continue to remain strong. In the PV segment, we expect new product launches to help drive excitement among buyers with the SUV segment retaining the consumer pulling power.

Overall, we feel that the semi-conductor shortage will dent demand in the PV segment in the short term but we expect things to start normalizing by end of FY22E. CVs are expected to be in the uptrend with things normalizing and the number of inquiries as well as overall retail numbers witnessing an improvement supports these expectations. The demand momentum in 2W remains weak on account of COVID 2.0 impacting the lower end of the income group relatively more, rising fuel costs, and price hikes by OEMs leading to higher channel inventory. The OEMs having higher dependence on exports will be better positioned to drive volumes.

There would be a seasonal effect seen in tractor numbers. As we enter the festive season, we see farmer sentiment getting strong and enquiry levels building up, driven by favourable macroeconomic factors, reasonably good water level of reservoirs, good pace of Kharif sowing and continued support by the government to the Agri sector, building hope for the tractor recovery to set in.

A few parts of the country have faced a rainfall deficit in Jul-Aug’21 and Sep’21 rainfall remains to be seen. Despite near-term headwinds, we remain positive on the Automobile sector and expect a strong rebound in H2FY22. We continue to believe Hero Motocorp, Bajaj Auto, and Ashok Leyland to do well.

2W/3W Segment

* Hero Motocorp reported a decline of 22% YoY in Aug'21 to record total sales of 4.5Lc units. Motorcycles de-grew by 23% YoY whereas Scooters sales were down by 16% YoY. The company’s exports remained strong and grew from 15.7K last year to 22.7K units in Aug'21.

* Bajaj Auto reported total sales of ~3.7Lc units resulting in a ~5% volume growth YoY. The company’s 2Ws volume grew by 5% YoY whereas its export volumes witnessed a strong growth of 18% YoY to record 2Lc units in Aug’21.3W volumes posted a marginal decline of 1% YoY.

* TVS Motors total sales for Aug’21 stood at 2.9Lc units, posting a 1% YoY growth. The 2W segment de-grew by 1% YoY whereas the 3W segment saw a growth of 61% YoY. Exports witnessed a 61% jump from 68K units to 1Lc units.

* Eicher Motors sold ~45K units of RE registering a ~9% YoY de-growth in Aug’21. The sub 350cc models de-grew by 17% YoY whereas above 350cc segment bikes saw a growth of 92% YoY. While domestic volumes were down by 18% YoY, exports witnessed 164% growth from 2.5K to 6.8K units.

PV Segment

* Maruti Suzuki posted total sales of 1.3Lc units marking a growth of 5% YoY during Aug’21. The domestic sales de-grew by 6% YoY on the back of semiconductor shortages. The exports saw a marginal 3% MoM decline to register 20K units.

* Mahindra's auto division grew by 1% YoY to 30K units. The PV segment witnessed a growth of 17% YoY whereas the CV segment de-grew by 42%.The company sold 2.5K 3Ws (including electric 3Ws) in Aug’21.

* Tata Motors reported total sales of 58K units registering a growth of 58% YoY. The PV sales grew by 51% YoY to 28K units whereas the CV segment recorded sales of 26K units, registering a growth of 55% YoY. The exports sales stood at 3.6K units.

CV Segment

* Ashok Leyland sold 9.4K units, reporting a 48% YoY growth in the overall sales. The MHCV segment posted a growth of 79% YoY whereas the LCV Segment grew by 27% YoY. The sales were aided by pent-up demand and pickup in economic activities post easing of lockdown restrictions.

* VECV reported a robust growth of 94% YoYin Aug’21to 4,793 units.

Tractor Segment

* M&M (Farm Equipment Sector) witnessed a de-growth of 13% YoY.The industry saw a decline in August over last year due to the high base effect. With the festive period on the anvil, which also coincides with the harvesting season, M&M is anticipating a robust demand in the coming months.

* Escorts reported total sales of 5.6K units in Aug'21 registering a 22% YoY decline. Domestic sales de-grew by 27% YoY whereas exports grew by 49% to 773 units. The farmer sentiment remains strong and enquiry levels are building up driven by favourable macroeconomic factors, reasonably good water level of reservoirs, good pace of Kharif sowing and continued support by the government to the Agri sector. Some parts of the country have faced a deficit of rainfall in Jul-Aug’21 and Sep’21monsoon remains to be a key monitorable.

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