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PV wholesales impacted by semiconductor shortage; demand remains robust: Recovery in PV volume post second Covid wave is being impacted by shortage in semiconductor supply. Our checks suggest that underlying demand remains strong and supply constraints has led to high pending bookings and low channel inventory. MSIL reported domestic PV wholesales of c.103k units (-9% YoY, -23% MoM). TTMT/Hyundai/M&M reported sequential decline of 7%/2%/24%.

Despite sequential decline, PV sales remained at healthy levels for most of the OEMs (except MSIL and MM). We expect the demand momentum in PVs to continue driven by focus on new launches, need for personal mobility, strong order book and pent up demand. MSIL has highlighted that owing to the semiconductor shortage, September production is expected at 40% of normal. Impact of the gradual price hike on the purchasing power and semiconductor shortage is a key monitorable.

2Ws – MC sales remain muted; scooters recovering; exports stay buoyant: 2W sales were supported by recovery in domestic scooters and strong exports, while domestic motorcycle sales were flat to negative MoM. TVSL and RE registered highest MoM increase in total 2W sales of 4%, followed by BJAUT (+2%) and HMCL (flat). Domestic MC sales remained muted and declined 4%/1% MoM for TVSL/HMCL and increased 1%/4% for BJAUT/RE despite a low base. Scooter sales gained momentum and increased 17%/10% MoM for TVSL/HMCL. 2W exports are up by 61%/26% YoY for TVSL/BJAUT.

Our channel checks suggest that dealers expect the demand to revive around the festive season starting Oct’21. However, BS6/commodity-related price hikes and high petrol prices are leading to stress on demand. Demand is expected to remain muted till 2QFY22 and momentum in 2H would be contingent upon a) consumer sentiment during festival season and b) response to new EV launches.

CV – sequential recovery continues: CV segment was on a path to recovery during 2HFY21. However, 2nd round of lockdown during Apr/May put a temporary pause on the recovery. Since Jun’21, CV segment has once again started on a recovery course. Total CV volume increased 3%/20%/9% MoM for AL/TTMT/VECV. MM CV volume declined 50% MoM driven by 52% decline in LCV volume. The total volume is still 30-50% below Mar’21 levels.

Domestic MHCV truck wholesales more than doubled YoY (on low base) and increased 15%/8%/20% MoM for AL/TTMT/MM. LCV volume were mixed with TTMT and VECV LCV volume increasing 22%/13% MoM, while AL and MM volume reduced 5%/52% MoM. As per IFTRT, truck rentals witnessed 4-6% increase in July. Going ahead, we expect CV sales to recover during 3QFY22. Bus segment continues to remain under pressure with volumes at 10-20% of normal.

Tractors – August impacted by deficit in monsoon: Tractor segment was adversely impacted during Aug’21 due to weak monsoon and high base last year owing to pent-up demand. Monsoon deficit as on Aug’21 end was at 9%. M&M domestic sales witnessed a de-growth of 15% YoY (-22% MoM) to c.20,000 units. Escorts domestic sales stood at c.4,900 units (-27% YoY, -19% MoM). Total tractor sales for M&M/Escorts declined 13%/22% YoY.

However, monsoon is catching up (IMD expects Sep’21 rainfall to be 110% of normal) and the deficit is expected to narrow down to 4%. In addition, support in MSP prices, good kharif sowing and continued strong Government support to all agri activities is likely to aid tractor sales. M&M management expects tractor industry to increase at low single-digit during FY22. We believe that YoY growth for tractors in FY22 is likely to be impacted by a high base going forward.

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