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PV/CV segments improve sequentially; weak rural sentiment impacts 2W/tractor demand

In Mar’22, PV OEMs' volumes increased sequentially indicating improvement in the chip situation. MSIL reported flat MoM (-7%YoY) volumes in domestic PV. Underlying demand in PVs remains strong with huge order backlog and lean inventory. In 2Ws, domestic sales continued to be weak due to muted demand. 2W export demand remained robust. TVSL premium 2W volumes were impacted owing to supply chain constraints. Near-term 2W domestic demand is contingent on improvement in rural sentiment. In the CV segment, volumes continued to recover and are now 20% above Mar’21 levels. Increasing freight rates indicate further improvement during 4QFY22. Domestic tractor volume fell significantly YoY owing to the high base. Tractor demand is likely to be supported by improved liquidity in the hands of farmers, good rabi harvest, and healthy reservoir levels. However, growth (%) may stay muted due to the high base.

2W demand may likely show some strength in the coming months. In the PV segment, wholesales in the near-term are likely to be a function of normalisation of chip supply as underlying demand remains robust. Sequential increase in freight rates since Jul’21 has supported the profitability of CV operators. Large fleet operators have entered the market, while retail purchases are yet to take off. We expect CV volumes to be supported by demand from infrastructure and construction sectors. We expect uptick in CV volumes to sustain as economic activities pick up pace and financing issues/ cash flow constraints are ironed out

PVs – reducing impact from chip shortage; demand remains robust: PV volumes registered marginal improvement (+13%YoY,+4%MoM) across key OEMs in the industry. MSIL reported domestic PV wholesales of 134k units (-8% YoY, flat MoM). TTMT and M&M reported total PV sales of c.42k units (+43%YoY, +6% MoM) and c.28k units (+65%YoY/flat MoM), respectively. Hyundai domestic PV sales stood at c.45k units (-15% YoY, 1% MoM). PV Exports were strong with MSIL reporting highest ever monthly sales of 26.5k units (+128%YoY, +10%MoM). MSIL highlighted that chip shortage had minimal impact on vehicle production in Mar’22. However, the management expects chip shortage to impact production volumes in FY23. TTMT created a new milestone by reporting highest ever monthly SUV sales of C.30k units. EV sales for TTMT stood at 3.4k units (3.76x YoY, +18% MoM) driven by rapid growth in demand for Nexon EV and Tigor EV. Toyota India reported highest ever monthly sales of 17k units (+14% YoY, +96% MoM) in five years since July’17.

2Ws – domestic wholesales remain weak, exports stay buoyant: Domestic 2W sales continued to be weak owing to muted rural demand, high fuel prices and increasing acquisition cost of vehicle. In the domestic 2W segment, TVSL/HMCL registered decline of 3%/24%YoY. RE domestic sales stood at 58.5k units (-3% YoY, +12% MoM). Export 2W volumes continued strong momentum with RE/HMCL reporting 56%/5% YoY growth. RE models with engine capacity greater than 350cc, reported strong growth of 58%YoY. RE management indicated that it is on road to recovery in the domestic market backed by strong demand momentum and gradual easing of supply chain constraints. HMCL expects gradual recovery in economic activities to support its sales momentum in FY23. Momentum in the coming months would be contingent upon a) improvement in rural sentiment and b) response to new EV launches. Despite near term headwinds, we expect OEMs with higher export exposure to be relatively better placed to navigate the slowdown in the domestic market, enabling them to outperform their peers.

MHCV/Bus post robust growth, LCV continues to improve : Demand for CVs continued to improve in Mar’22 driven by increased momentum in infrastructure, construction and mining. Total CV volume increased 56%/40%/31%MoM and 31%/18%20%YoY for VECV/AL/TTMT. In the MHCV segment, VECV/AL/TTMT/MM volume increased 85%/55%/42%/21%MoM. For LCV, MM volumes decreased 2%MoM while VECV TTMT/AL reported 40%/21%/16% improvement MoM. We expect CV sales to continue to improve during 1QFY23 driven by improving fleet utilisation, freight availability/rates, and better financing. In the CV space we expect volume momentum to improve sequentially going ahead.

Tractors – sequential recovery in demand supported by improving rural sentiment: Tractor volumes registered degrowth YoY driven by a) high base of last year, b) subdued commercial demand, and c) inflationary impact on demand. M&M domestic sales stood at 28k units (-6% YoY, +49%MoM) while Escorts reported domestic sales of c.9.5k units (-19% YoY, +67%MoM). M&M reported healthy export growth of 43%YoY while Escorts reported growth of 38%YoY. M&M management highlighted that rural sentiments continue to remain positive supported by a) substantial traction in export of agricultural commodities, and b) expectations on normal monsoon. Acceleration in acreage of kharif crop will bring steady cash flows which are expected to boost tractor demand going forward. Escorts management remains buoyant on future demand for tractors driven by a) high water reservoir levels, and b) increased union budget allocations. However, rising inflation continues to remain an area of concern

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