Auto Sector Update - October 2022 preview: Volume uptrend to persist on strong festive demand By Emkay Global Financial
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* In Oct-22, we expect wholesales to grow in PVs, CVs, 3Ws, and 2Ws, supported by the healthy festive season. In contrast, tractor wholesales are likely to decline on account of inventory de-stocking. Our channel checks indicate robust double-digit growth in PVs, CVs, and 3Ws and single-digit growth in 2Ws and tractors for the festive season’s retail sales. We retain our Positive view on the auto sector. Our top picks in the OEM space include MSIL, MM, TTMT, ESC, and AL.
* CV industry’s volumes should grow in double digits (15%+) with robust demand in both passenger and cargo segments. The e-way bill trend indicates better freight availability compared with last year. We expect positive growth at 55% YoY for AL, 43% for MM, 9% for EIM-VECV, and 2% for TTMT in the domestic market. AL remains an outperformer due to favorable mix and aggressive marketing efforts.
* PV industry’s volumes should witness robust growth (30%+) on account of strong festive demand, large order book and production ramp-up. Among OEMs, we estimate domestic volumes to grow by 64% YoY for MM, 34% for MSIL, and 34% for TTMT. Volume tally for MM and MSIL is being supported by dispatches of new products (Scorpio-N for MM and Vitara for MSIL). Vehicle discounts have increased on MoM basis but remain significantly lower than the elevated levels seen in the past.
* 2W industry volumes are expected to slightly improve owing to the festive demand, supported by discount schemes, better finance availability, and favorable base effect. Our channel checks indicate that urban demand is better than rural and scooters are doing well in comparison to motorcycles. Within motorcycles, executive/premium segments are outpacing the entry-level segment. We expect domestic volumes to improve by 77% YoY for EIM-RE and 4% for TVSL. In comparison, we expect a decline of 13% for HMCL and 9% for BJAUT due to inventory de-stocking. EIM-RE remains an outperformer on account of strong festive season and success of the new model, Hunter.
* Tractor volumes are likely to decline on inventory de-stocking with dealers. We expect a decline of 5% YoY for MM and 9% for ESC in domestic volumes.
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