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Inventory build-up in PVs initiated much before festive season

As per our channel checks and analysis of wholesale vs retail data of vehicles sold in Apr-Jul’23, inventory levels for PVs have increased vs CVs/2Ws managing it far better. Cumulative inventory addition for key PV players like MSIL/MM in Apr-Jul’23 is now at 84% of Jul’23 retails, implying limited scope for further inventory addition in Aug-Sep’23. Our channel checks indicate inventory days have increased from ~30 in Jun’23 to ~40 currently for large MSIL dealers and, with festive season being from October this year, we do not expect further stocking till Sep’23. 2W players have managed inventory much better, especially HMCL and TVS, with HMCL actually reducing inventory in this period. M&HCV leaders TTMT/AL also reduced inventory in this period, keeping retails largely flat YoY.

Inventory build-up in PVs already visible; still a couple of months to go for festive season to start

In the period of 4MFY24, cumulative inventory creation for MSIL/MM was equivalent to ~84%/~60% of Jul’23 retail volume. Even in the preceding 4- month period, absolute inventory only increased for both, implying dependence on rising retails in subsequent months. With the festive season starting from October this year and being spread till November, we believe any major increase in wholesales over Jun-Jul’23 levels would only be possible in Oct’23E for the PV majors. Scope for further inventory addition at the current juncture looks unlikely as it has moved from ~30 days towards ~40 days for large MSIL dealers, as per our channel checks. For MM, we expect monthly UV volume to be sub-35k units in Aug-Sep’23E, as inventory build-up is mainly driven by models other than Scorpio N, XUV 700 and Thar. Average PV retails of MSIL+ MM in Apr-Jul’23 is down 10% vs preceding four months – despite new launches (Fronx, Jimny) and up 9% YoY during the same period.

2Ws fared relatively better than PVs in terms of managing pre- festive season inventory

For 2W majors BJAUT/TVS/RE, the cumulative inventory creation in Apr-Jul’23 was at 30%/25%/50% of Jul’23 retails as against HMCL actually reducing inventory in this period (negative 13% of Jul’23 retails). Good thing is, all these players also reduced inventory in the preceding four months, suggesting good scope to improve wholesales from Aug’23 itself as a run-up to festive season and peak out in Nov’23. Our channel checks tell us inventory days at dealerships of TVS/BJAUT/RE/HMCL are under reasonable control in Aug’23- TD, providing scope for better wholesales prior to retail demand spiking from Oct’23. Average monthly 2W retails for HMCL/BJAUT/TVS/RE combined were up ~10% in Apr-Jul’23 vs preceding four months as well as the same period of FY23.

M&HCVs remain steady in terms of both retails and inventory

Despite pre-buying in Q4FY23 driven by BSVI-2 norms, average MHCV retails were down 13% QoQ in Q1FY24 and, additionally, overall inventory levels for the key CV players have only reduced during the period. Retails largely remained flat YoY in Q1. This paves the way for seasonally better retail demand, post end of monsoon in Aug’23, with mining, construction and infra activities likely picking up.

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