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The Federation of Automobile Dealers Associations (FADA) reported that auto industry retail volumes grew ~19% YoY in the 2023 festive season (42-day period, beginning on the 1st day of Navratri through to 15 days post Dhanteras), led by ~21% higher 2W sales. PVs noted ~10% growth, with CVs up ~8% and growth in Tractors staying flat. We continue to believe that 2W recovery would sustain post the festive season, driven by replacement demand; 4W segments (PVs, CVs) are less attractive, amid slowing underlying growth momentum.

Industry retails up ~19% YoY, led by ~21% higher 2W sales

As per FADA, industry retails in the 2023 festive season stood at ~3.8mn units, an 18.7% YoY growth. Amid categories, growth was led by 20.7% higher volume in 2Ws and 41.4% growth in 3Ws. PVs logged 10.3% growth, with CVs up 8.1% and Tractors staying flat.

Rural push to 2W retails; recovery continues to broaden

2W momentum sustained through the 2023 festive period; encouragingly, FADA commentary highlighted strong rural support for 2Ws, in line with the ongoing broadening of the demand recovery, e.g. HMCL recently reported (refer to link) ~19% YoY growth in its retail volumes (best-ever festive period), backed by improving rural demand. We note that demand on the premium motorcycle front has remained robust (BJAUT’s above125cc retails grew ~50% YoY in Oct-Nov combined; Royal Enfield festive volumes also saw 13-14% YoY growth).

PVs recover, as festive wore on; however, high inventories remain a worry

PVs, on the other hand, underperformed during Navratri (up 6.5% YoY), but improved substantially thereafter (11.7% YoY post-Navratri), with overall growth consequently placed at ~10% YoY. FADA noted that SUV demand remained strong, though stock levels for the segment pose a concern amid continuing OEM push to dispatches, resulting in inventories that are near all-time highs.

Single-digit growth in CVs; tractors end season on a strong note

Elsewhere, CV retail growth for the period stood at ~8% YoY. Momentum in tractor retails improved towards the latter half of the festive season (~8% decline during Navratri vs. ~2% YoY growth post Navratri), amid strength returning to rural purchasing power.

Our View: Prefer 2W plays over PVs and CVs

Commentary from FADA and companies alike, around buoyancy in rural demand along with improving retail performance, reinforces our positive stance on 2Ws. We believe that 2W festive performance is not a one-off and that growth here is likely to sustain amid a record-high fleet age (with industry volumes still ~25% off the previous peaks, as of FY23) driving replacement-led upturn over the next 2-3 years. TVSL is our top pick in Autos, on the back of its enduring margin improvement despite rising EV share (refer to Strength of an incumbent with the agility of a start-up); we also like EIM (focused play on premium 2Ws, expanding presence in the performance-oriented sub-segment with attractive valuations; refer to Entering product cycle; risk-reward favorable) and HMCL (improving rural demand amid supportive valuations; refer to Steady quarter; ruraldemand cycle finally turning). Relatively, momentum is expected to slow down in PVs amid emerging signs of softness (best of product cycle now largely behind, shrinking order-books, high inventories). We are also cautious on CVs, as the best of the current upcycle may now be behind (with trucking system capacity up 40-50% vs. FY19, similar to increases seen in the past two upcycles)

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