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Wholesales a mixed bag in Oct`21

PV wholesales reflect easing of the shortage in semiconductors; 2W demand continues to remain muted PV/Tractor wholesales came in above our estimate, whereas the same for 2Ws/CVs was below our expectation. Tractors were in line. There were some signs of a sequential recovery in PV wholesale dispatches in Oct’21, though it was still low on a YoY basis. The semiconductor situation is expected to improve further in Nov’21. CV demand is picking up, while 2Ws failed to pick up in spite of the festive season. Among 2Ws, HMCL/BJAUT/TVSL/RE were below our estimate. 2W/PV volumes declined by ~23%/15% YoY, whereas the same for CVs/3Ws grew 19%/14% YoY.

* 2Ws – below our estimate, down 23% YoY (+5% MoM): The YoY decline in wholesales reflects the weak demand during Navaratri and the upcoming Diwali festive season. Inventory stands at 45-60 days. Volumes for BJAUT/HMCL/TVSL/RE declined by 17%/32%/11%/34% YoY (+8%/+3%/+3%/+32% MoM). The sequential improvement in RE wholesales reflects the easing of supply chain bottlenecks.

* PVs – above our estimate, declined by 15% YoY (+55% MoM): With the semiconductor shortage showing initial signs of easing, wholesales are expected to improve further. Volumes for MSIL declined by 24% YoY (+60% MoM). MM (UVs including Pickups) volumes declined by 2% YoY (+30% MoM). PV volumes for TTMT continued its strong showing, up 44% YoY and 32% MoM.

* CVs – below our estimate, up 19% YoY and 4% MoM: M&HCV and LCV volumes came in below our estimate. M&HCV/LCV volumes grew 36%/6% YoY (- 1%/+10% MoM). Volumes for AL grew 11% YoY and 16% MoM. CV volumes for TTMT grew 18% YoY (flat MoM). The same for VECV grew 38% YoY (-4% MoM).

* Tractors – above our estimate, flat YoY (+23% MoM): Tractor volumes were flat YoY (+23% MoM) as OEMs have built inventory to cater to demand that has been delayed due to disruptions in the rainfall. MM/ESC’s Tractor volumes were flat YoY (up 17%/53% MoM)

* Valuation and view: The semiconductor shortage is expected to continue in 2H, though there would be improvement in supplies over 2QFY22 levels. We prefer 4Ws over 2Ws on the back of strong demand and a stable competitive environment. We expect the CV cycle to gather momentum in 2HFY22. We prefer companies with: a) 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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