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OEMs push dispatches to normalize dealer inventory

A few OEMs have reported healthy dispatches in January, which we believe is largely a function of normalizing inventory, as retail demand does notseem to have picked up in any of the segments. Within PVs, MM and MSIL have outperformed other listed peers. In 2Ws, both TVS and RE have posted healthy growth and better-than-expected sales. CV OEM sales were largely in line with our estimates. In tractors, MM continued to significantly outperform Escorts. The current Budget has provided a much-needed boost, which is expected to help revive demand for 2Ws and PVs in FY26E. However, the shift in focus away from capex does not bode well for the CV sector. Our top picks among auto OEMs are MSIL/MM, and in ancillaries, we like MOTHERSO, ENDU, and HAPPYFORG.

* 2Ws (TVSL and RE above est): TVS 2W volumes have grown above est. by 8% to 388k units (est. 357k units), reflecting an 18% YoY growth. The key growth driver was the scooter segment (+29% YoY), driven by healthy demand for the new Jupiter model. RE posted a 20% YoY growth to 91k units (est. 85k units), surpassing the estimate by 7%. HMCL volumes grew ~2% YoY to 442.9k units (inline). BJAUT is yet to report its dispatch numbers.

* PVs(above estimate): Overall PV wholesales grew 4% YoY, with passenger cars and UVs likely to have grown by 3%/8% YoY. MSIL and MM have outperformed other listed peers in the month. MSIL PV volumes grew 6.5% YoY over a high base to 212k units. For MSIL, for the first time in many months, the cars segment has grown in line with UVs at 5%. Compact cars saw a 7.5% YoY growth, largely led by encouraging demand for the new Dzire. This marks the highest sales for the compact segment for MSIL in the past 29 months. Additionally, MSIL wholesales were expected to be strong, as the company had reduced inventory to 9 days by December end. MM also posted strong UV growth at 18% YoY to 50,659 units (inline). On the other hand, TTMT’s PV volumes declined by 10.6% YoY to 48.3k units (est. 53.3k). Hyundai’s volumes were in-line, posting a 3% YoY decline at 65.6k units, as domestic volumes declined 5.4% YoY while exports increased 10.5% YoY. Hyundai’s new Creta EV has significantly boosted sales, reaching 18,522 units in January, marking its highest-eversales for the model.

* CVs(in-line): Overall CV volumes grew 3.5% YoY in Jan’25. CV sales for TTMT were in-line, reaching 31.9k units. While MHCV sales increased 10% YoY, LCVs saw a 9% YoY decline. AL posted an 8% YoY growth to 17.2k units (in-line). VECV’s sales grew 20% YoY to 8.5k units (ahead of est. of 7k units).

* Tractors(above estimate): MM continued to outperform Escorts in tractors. MM tractor sales grew 15% YoY to 27.6k units, compared to our expectations of 25.8k. Meanwhile, Escorts reported a 7% YoY decline to 6.7k units (inline). MM, in its press release, highlighted positive rural sentiments, strong government support, and higher budget allocation as the key factors that will help boost tractor demand going forward.

* Valuation and view: While several OEMs have shown healthy wholesale growth in January, we believe this is a function of normalizing dealer inventory, as retail demand has not shown a pickup in any of the segments. The recent Budget has provided a much-needed boost for the revival of auto demand in FY26E. MSIL is our top pick among auto OEMs as its upcoming new launches are expected to improve its product mix and drive healthy earnings growth. We also like MM, given the upcycle in tractors and healthy growth in UVs. Among ancillaries, we prefer MOTHERSO, ENDU, and HAPPYFORG.

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