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Nov’21 wholesales: 2Ws continue their weak showing…

…PVs in line on improvement in semiconductor supplies; CVs maintain their momentum

2W, Tractors, and CV wholesales were below our estimate, whereas PV wholesales were in line. There were signs of a recovery in Nov’21 in terms of PV wholesale dispatches due to the easing of semiconductor shortages. 2W demand shows no signs of a pickup, while CV demand is improving. Among 2Ws, volumes for HMCL/TVSL was below our estimate, while RE/BJAUTO was in line. 2W/PV/Tractor volumes declined by ~26%/3.5%/19% YoY, whereas CV/3W volumes grew 10%/11% YoY.

* 2Ws – below our estimate, declines by 26% YoY and 25% MoM: A YoY decline in wholesales reflects weak demand during the festival and marriage season. Rural demand recovery is back-ended. Volumes fell 12%/41%/17%/19% YoY (-13.5%/-36%/-24.5%/ +17% MoM) for BJAUTO/HMCL/TVSL/RE. A sequential improvement in wholesales for RE reflects easing of the supply chain.

* PVs – In line, declines by 3.5% YoY and 2% MoM: With the easing of semiconductor shortages, wholesales are expected to improve further. MSIL’s volumes declined by 9% YoY (flat MoM). Volumes for MM (UVs including Pickups) declined by 4% YoY and 2% MoM. TTMT’s PV volumes continued its strong showing with a growth of 38% YoY (-12% MoM).

* CVs – Below our estimate, grew 10% YoY (-8% MoM): M&HCV volumes were below our estimates, while LCV volumes were in line. M&HCV/LCV volumes grew 20%/2% YoY (-12.5%/-4% MoM). Volumes for AL declined by 2% YoY and 5% MoM. TTMT’s CV volumes grew 10% YoY (-8% MoM). The same for VECV grew 10% YoY (-30% MoM).

* Tractors – Below our estimate, declined by 19% YoY and 42.5% MoM: Tractor volumes declined by 19% YoY and 42.5% MoM due to seasonality and delayed monsoons affecting cash flows. MM/ESC’s Tractor volumes fell 15%/30% YoY and 41%/47% MoM.

* Wholesales a washout in the festive (Sep-Nov’21) season: Wholesales over the entire festive season (pre-festive inventory filling to the festive season) were in the red across players, barring TTMT’s PV. Wholesales for mainstream 2W players like HMCL/RE/ BJAUT/TVSL fell 32%/32%/23%/14% due to weak demand and declined by 35%/13% for MSIL/MM due to supply chain constraints. TTMT’s PV grew 35% YoY on a low base (new model launches in CY21). Tractor wholesales for MM/ESC declined by 6%/17% YoY.

Valuation and view:

While easing semiconductor supplies support PV wholesales, the 2W segment is yet to recover from the high cost of ownership. We prefer 4Ws over 2Ws on the back of strong demand and a stable competitive environment. We expect the momentum in the CV cycle to continue. We prefer companies with: 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.

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