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PVs: Strong recovery in a difficult year led by UVs

Resurgence of TTMT and emergence of Kia hurt MSIL’s market share

* We analyzed the brand-wise data for the domestic PV industry to understand segmental trends and market share changes.

* Despite the COVID-19 pandemic, domestic PV wholesales declined by just 2.2% in FY21 (v/s a fall of ~18% in FY20), led by preferences for personal mobility and pent-up demand.

* Several launches from competition and lack of new launches from MSIL led to a ~340bp decline in its domestic PV market share to 47.7%. While Hyundai maintained its market share at 17.4%, MM lost 90bp (to 5.8%), whereas TTMT (+330bp to 8.3%) and Kia (+260bp to 5.7%) gained market share.

* MSIL’s exit from the Diesel space and new competition resulted in a market share loss of 570bp/670bp/400bp/260bp in UV1/Midsize Sedan/Compact Sedan/Compact Hatchback.

* The SUV trend continued and gained further momentum (~500bp) to 39% of domestic PV volumes in FY21.

FY21 ends on a strong note led by robust growth in SUVs

* Despite the COVID-19 pandemic, domestic PV wholesales declined by just 2.2% in FY21 (v/s a fall of ~18% in FY20), driven by preference for personal mobility and pent-up demand. After the initial impact of lockdowns in 1Q, demand for PVs recovered sharply from 2QFY21 onwards.

* Several launches from competition and lack of new launches from MSIL led to a ~340bp decline in its domestic PV market share to 47.7%. While Hyundai maintained its market share at 17.4%, MM lost 90bp (to 5.8%), whereas TTMT (+330bp to 8.3%) and Kia (+260bp to 5.7%) gained market share.

* The SUV trend continued and gained further momentum (up ~500bp) to 39% of domestic PV volumes in FY21. UV1 segment was the key driver of this growth, led by several new launches, resulting in a 580bp increase in its share to 32.8%. On the other hand, the Sedan segment (Compact and Midsize)/Mini Hatchbacks/Compact Hatchbacks/UV2 lost 300bp/160bp/60bp/90bp market share (to ~10.9%/16.9%/29%/5.2%).

Segment-wise growth trends: Compact UV leads the market

* Mini segment volumes declined by 10.7% YoY. MSIL further strengthened its market share in this segment with a 550bp gain (to 85%). Hyundai (-500bp to 5.1%) and Renault (-20bp to 8.9%) ceded market share to MSIL.

* Compact segment volumes were flat YoY. MSIL lost 260bp market share (to 54.8%) after discontinuation of its diesel variants. TTMT’s market share leaped by 800bp (to 15.4%) on the successful launch of Altroz. Hyundai’s market share declined by 350bp (to 22.9%).

* The Sedan segment declined by 24% YoY. The Compact/Midsize Sedan category fell 23.4%/25.8%. MSIL lost 400bp market share (to 57.9%) in the Compact Sedan segment due to its exit from the Diesel space. In the Midsize segment, the upgraded City enabled Honda to regain its top position with a market share of 34.5% (+13.1pp YoY). MSIL’s market share declined to 19.1% (-6.7pp YoY).

* UV1 segment grew ~19% YoY (v/s an industry decline of 2.2%). This growth is largely attributed to the successful launch of Kia Sonet (Sep’20) and secondgeneration Hyundai Creta (Mar’20). Sub-four meter UV share grew to 60.7% (v/s 57.9% in FY20). MSIL (-570bp to 25.7%) and MM’s (-280bp to 12.7%) market share declined, whereas Kia (+630bp to 17.2%), TTMT (+140bp to 7.2%), and Hyundai (+50bp to 23.9%) gained.

* UV2 segment fell 16.1% YoY. MG Motors (+950bp to to 22.4%) and TTMT (+650bp to 16.1%) gained market share, whereas MM (-780bp to 29.9%) and Toyota (-500bp to 26.9%) lost market share.

Resurgence of Tata Motors led by product tailwinds

* TTMT gained market share across segments, leading to overall market share of 8.3% (+330bp YoY), on the back of a strong product portfolio.

* Its Compact segment grew 108.5% YoY (v/s flat for industry), leading to a market share of 15.4% (+800bp YoY) due to a good response to Altroz (launched in Jan’20).

* TTMT’s market share in Compact UV (UV1) stood at 7.2% (+140bp). Volumes of its only compact UV – Nexon (upgrade launched in Jan’20) – grew by 47.4% YoY (v/s segmental growth of 18.8%).

* Market share gains in UV2 segment to 16.1% (+650bp YoY) were driven by strong momentum in Harrier and the recent relaunch of Safari (Feb’21).

Emergence of Kia with a focus on SUVs – already at third place in SUVs

* Kia’s domestic PV market share grew to 5.7% (+260bp YoY), driven by a very good response to the Sonet (launched in Sep’20), offsetting the decline in the average monthly wholesales of Seltos (7.4k units in FY21 v/s 10.2k units in FY20).

* It has emerged a strong player in the UV1 segment and gained 630bp YoY, leading to 17% market share within 18 months of its first launch.

* Kia is already in the third place in SUVs, with 14.7% market share (marginally ahead of MM), and in the fifth position in domestic PVs, with 5.7% market share (marginally behind MM). New launches: Hits and misses of FY21

* Compact: Tata Altroz (launched in Jan’20) was well received by customers (monthly run-rate of over 6k units), leading to TTMT’s market share of 15.4% (+800bp YoY).

* Compact Sedan: Hyundai Aura (launched in Jan’20) maintained its momentum, with average volumes of ~4k units in the last six months.

* Compact UV (UV1): Kia Sonet (Sep’20) and MM Thar (Oct’20) did exceedingly well. Thar has surpassed the company’s expectations. Primarily conceived as an Off-roader, it has been accepted as mainstream vehicle, leading to an order book of 35-40 weeks. Kia Sonet also started off well, with an average run-rate of 9k units. Toyota Urban Cruiser (rebadged MSIL Brezza, launched in Oct’20) is clocking a monthly run-rate of 2.7-3k units. Nissan Magnite (Dec’20) has seen a good initial response, with average volumes of 3k units. The launch of Renault Kiger (Feb’21) builds on the success of the Triber (launched in Aug’19) and is sustaining a monthly run-rate of over 4k units.

* UV2: Tata Safari (Feb’21) was the only launch in this category. It shares the same platform with the Tata Harrier.

Valuation and view

* We prefer 4Ws over 2Ws as PVs are the least impacted segment currently and offers a stable competitive environment. We expect the CV cycle recovery to sustain and gain momentum.

* We estimate 7% PV industry volume CAGR over FY20-25E (on a low base of ~7.7% CAGR decline over FY18-20). This, coupled with the continuous trend of premiumization, would drive 9-10% revenue CAGR.

* We estimate MSIL to gain market share, driven by an expected shift toward petrol vehicles, resulting in ~9% volume CAGR over FY20-23E. This, coupled with an improved mix and reduced discounts, would drive ~10% revenue CAGR over FY20-23E.

* We prefer companies with: a) higher visibility in terms of demand recovery, b) a strong competitive positioning, c) margin drivers, and d) balance sheet strength. Our top picks in Autos are MSIL and MM among largecaps, and ENDU in midcaps. TTMT is our preferred bet on the global PVs.

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