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Sector performance

The month of June was a mixed bag again for the auto companies. 2Ws had shown a good performance in May, however month of June witnessed a weakness in two wheeler numbers both mom and yoy. 2W exports have shown some signs of improvement sequentially, which can be an important parameter to trace the exports performance. On yoy basis, still the exports growth is negative. On the PV front, all the companies have posted strong growth led by the SUV growth story. On the CV side of the sector, we saw a fall in LCV segment for both Tata Motors and Ashok Leyland yoy, however both the yoy and sequential growth for MHCV was robust across the segments. Pre-buying seen in March impacted April MHCV sales, however, since then we are witnessing considerable sequential growth in it. Tractors segment is witnessing strong sequential growth, while on a yoy basis growth is on expected lines of single digit.

Company wise performance

Among the PV OEMs, MSIL has posted slightly subdued numbers at 1.59 lakhs as compared to May when it posted highest sales after 31 months at 1.78 lakhs. However, on a yoy basis, the total sales in the domestic markets came in at 8.2% while the exports declined by 17%. The domestic growth came on the back of the successful launch of Fronx and Jimny 5 door SUV in April and June respectively. The continued success of the twin launches of new Granda Vitarra and Brezza in the earlier months initiated the growth in the SUV segment earlier. Also the easing up of chip shortage led to catering of the pent up demand. Small cars in May de-grew by 2.7% yoy and were up by 14.9% mom. The compact car segment went down by 17% yoy and 10% mom. The UV segment grew 130% yoy and dipped by 6% mom.

TaMo’s PV segment saw a 5% yoy and 3% growth sequentially. M&M’s SUV segment on the other hand, jumped by 22.4% yoy while fell by just 1% mom. CV division was up 2.6% yoy and 4.5% mom as the initial impact of BS VI Phase-2 implementation faded off. M&M’s tractor business in the domestic markets rose by 8.9% yoy and 31% mom. However, Escorts Kubota’s domestic tractor sales were flattish yoy and grew by 6.5% mom. Tractor segment posted good performance in June (a strong month from agri point of view), while their future performance shall be good if monsoons turn out to be normal and impact of El Nino is minimum. Also with a further advancement of monsoon across the country coupled with adequate reservoir levels, better liquidity and consumer credit availability, we expect the demand momentum for tractors to improve in coming months.

In 2W segment Bajaj reported a growth of 33% yoy and 14.6% mom fall for its domestic motorcycles while in exports, motorcycles de-grew by 33% yoy and grew by 13% mom. This sequential growth is a positive sign indicating exports may have bottomed out. However, we need to follow this trend closely in the ensuing months. Their 3W segment moved up by 153% yoy and 0.3% mom domestically on a good pick up in the CNG portfolio and e-3Ws. Exports 3Ws however disappointed by posting a de-growth of 23% yoy and 1.6% mom. Hero Motocorp posted weak performance last month as sales de-grew by 10% yoy and 16% mom. Hero’s Scooters sales however grew by 38% yoy to 32.5K units.

Our view

We witnessed a stronger May as compared to April for MHCVs and tractors. Even PVs witnessed a decent performance. 2Ws were slightly weak in June, but exports improved sequentially. Going forward, the impact of expected El Nino needs to be seen on the rural centric segments. CVs have started witnessing a strong comeback post dip on the back of BS VI phase-2 implementation, as strong underlying parameters would keep the going strong. Tractor industry growth needs to be monitored as well on expected El Nino setting up in the coming monsoon.

We remain positive on the sector. However, our choice is in the following order –PVs, 2Ws and CVs. Stocks specifically, within the 2Ws, we like Bajaj Auto as we expect the sequential growth seen in June to continue hereon as $ scenario may improve in Africa. Also the EV strength gaining from Chetak and upcoming launch of e-3W can be additional positives. Domestically on the motorcycles side as well the company is posting decent numbers. TVS too looks promising with its dominance in EV scooters and solid performance by its star performers like NTorq, Jupiter, Apache, Raider and the recently launched Ronnin. While on the PV side, we like M&M because of its thrust on rural markets through its leadership in tractors business, prudent capital allocation and a robust growth strategy in UVs, EVs and CVs. We also like MSIL on the PV side because of its wide portfolio of vehicles and inroads into the SUV industry. We like Ashok Leyland within CVs as it has a diversified revenue base deriving from LCVs, Defense, MHCVs, exports and spares. Every dip in the stocks mentioned above, shall provide good opportunities for investors to enter into them from medium to long term perspective.

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