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Muted performance across segments; chip shortage and price hikes keep the demand muted

In Nov’21, PV OEMs' volumes remained impacted by semiconductor shortage. MSIL reported 19% YoY decline in domestic PV volume. However, underlying demand remains strong along with high outstanding bookings and lean inventory. In case of 2Ws, muted festive demand resulted in post festive destocking leading than lower than expected sales. 2W export demand remained robust. Near-term 2W domestic demand is contingent on realization of Kharif crop and marriage-related sales. In CV segment, MHCV recovery witnessed a pause with 15-25% MoM decline, while bus segment continued to recover. CV volume (across companies) is still 20-40% below Mar'21 level. However, increasing freight rates indicate further improvement during 4QFY22. Domestic tractor volume declined significantly YoY owing to high base and erratic rainfall. Tractor demand is likely to be supported by healthy agri-pricing, good kharif harvest/rabi sowing and continued strong Government support to all agri activities. However, growth (%) may stay muted due to high base.

2W demand is expected to pick up in 4Q driven by encouraging farm output and marriage season. In PV segment, wholesales in near-term are likely to be a function of normalisation of chip supply as the underlying demand remains robust. Sequential increase in freight rates since Jul’21 has improved the profitability of CV operators. Large fleet operators have entered the market, while retail purchases are yet to take off. While retail purchases(small operators) are yet to take off, wholesales are expected to improve, it is crucial to monitor sustainability of retail sales in the wake of impending price hikes.

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