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Autos sign off FY25 on a weak note

2W OEMs transitioning to OBD2, PV discounts surge amid rising inventory

* Auto retail demand remained weak across segments in Mar’25, impacted by the Kharmas period, which particularly affected 2W and tractor demand. PV retail sales are expected to decline 12-14% YoY for the month. Given this, OEMs have raised discounts in Mar’25, which are now hovering closer to Dec’24 levels. 2W retails are expected to drop 11-13% YoY. Owing to the ongoing transition to OBD-2B norms (BS6 phase 2), 2Ws are seeing a price hike in the range of INR800 to INR3k. However, Honda Motorcycle and Scooter India (HMSI) has taken a steeper price hike in certain models (including its flagship Activa), which is likely to lead to a competitive disadvantage, if not reversed. CV demand has not improved and is expected to fall 7-9% YoY. Tractor retails have been weak in regions we checked for reasons highlighted above, though a strong crop outlook and upcoming festivals keep demand revival prospects positive. Overall, we expect Mar’25 dispatches for PV/tractors to grow 7%/13% YoY, while they are likely to decline 2%/4% YoY for 2Ws/CVs.

* 2Ws: Demand remains weak, with retail volumes expected to decline 11-13% YoY as enquiry levels remain subdued in most regions. In northern states such as UP and Bihar, YoY volume growth will be affected by last year’s high base, driven by the early start of the marriage season. This year, demand has been dented by the Kharmas period, which will continue until mid-Apr’25. Thereafter, dealers are hopeful of a demand revival given favorable agricultural sentiment and the start of the marriage season, particularly in North India. Most OEMs, including HMSI and TVSL, have transitioned to OBD-2B vehicles, replacing older models. While the average price increase due to this shift is INR800 to INR3k, Activa DLX saw a steeper hike of INR10k-12k, which included alloy wheels and display upgrades. On the other hand, Jupiter 110 has seen a price increase of about INR2k, while TVSL has not raised prices of its 125cc variant. The sharp price hike by HMSI has widened the price gap between the top two competing models (Activa DLX and Jupiter 125cc), leading to a favorable shift toward Jupiter 125cc. In motorcycles, both Hero MotoCorp (HMCL) and Bajaj Auto (BJAUT) are seeing weak demand across segments. For HMCL, the Xtreme 125cc volumes have now stabilized at lower levels. Even the Pulsar125 and TVS Raider are not seeing any major pick-up in demand. Unlike PVs, discounting in 2Ws remains moderate across OEMs. Inventory currently stands at 45-50 days, reflecting cautious retail momentum. For Mar’25, we expect dispatches to fall 16%/1% YoY for HMCL/BJAUT and grow 14%/22% for TVSL/Royal Enfield (RE).

* PVs: Retails are expected to decline 12-14% YoY during the month, though dispatch figures may reflect a lower drop. Sales were relatively better in Tier-1/2 cities vs. rural areas. Discounts remain elevated across OEMs, particularly at the dealer level, with average price discounts nearly 75-80% higher YoY. Arena models such as Alto K10 and S-Presso received benefits of up to INR85k, while Wagon R offered discounts of up to INR80k. Swift model had discounts of up to INR65k. In NEXA, Grand Vitara had discounts of up to INR120k, and Baleno offered benefits of up to INR45k. One of the dealers indicated that given the offered benefits of up to INR45k. One of the dealers indicated that given the slowdown in demand in Jan-Feb’25, OEMs seem to have raised discounts, which are now hovering close to Dec’24 levels. Inventory levels have risen sharply for Maruti Suzuki (MSIL) dealers, increasing from 1-2 weeks in Jan’25 to 5-6 weeks currently. We observed similar trends across other OEMs as well, especially for hatchbacks and entry-level SUVs. Our interactions with few MP-based dealers indicated healthy volumes for the month, driven by the Vikramotsav mela in Indore, Ujjain and Gwalior. Here, RTOs have slashed registration rates by 50%, while dealers are offering attractive discounts vs. competitors. Overall, most of the car OEMs have announced price hikes of around 3-4% wef Apr’25. We expect dispatches for MSIL/MM to grow 6%/27% YoY, while they are expected to decline 3%/8% YoY for Hyundai/Tata Motors (TTMT).

KTAs from our interaction with a dealer of HMI

We interacted with one of the dealers of HMI based in Mumbai. At the dealership, there was no bias in promoting Creta EV or ICE models. For Creta EV, the primary concern was whether the buyer’s residential society permits charging infrastructure. If approved, Hyundai conducts a survey and manages installation. Government incentives reduce registration charges to INR5k, providing a benefit of INR190k-200k per vehicle. The top-end EV variant is about INR180k more expensive than the topend diesel variant (refer to the table below). Neither model has official discounts, though dealer-end offers may be available for the ICE variant. Financing terms differ, with Creta ICE having a 90% LTV, while the EV’s LTV varies based on the CIBIL score.

* CVs: Demand remains weak, with retail volumes expected to decline 7-9% YoY for the month. Freight utilization remains stable at 75-77%, but operators are willing to reduce freight rates to deploy idle trucks, keeping demand and supply largely balanced. Digitization has improved tracking, enabling large fleet operators to aggressively bid for tenders. This has led to undercutting of freight rates, further pressuring the market. OEMs have increased incentives in certain regions to drive sales. While OEMs have announced price hikes of up to 4%, dealers indicated that these hikes will largely be absorbed through discounts rather than the actual price realization. Inventory levels remain elevated at around 35 days, reflecting weak market sentiment and slow retail movement. Bus demand remains healthy and is expected to grow 1-2% YoY, making it the only category to report YoY growth. We expect dispatches to decline 8% YoY for TTMT, to remain flat for Ashok Leyland (AL), and to grow by 5% YoY for VECV.

* Tractors: Tractor demand is expected to decline 8-10% YoY, primarily due to the Kharmas period. However, the hope of a recovery is driven by good crop output, particularly wheat, as the significant gap between buffer stock requirements and actual stock levels could push prices higher. The upcoming Gudi Padwa in Maharashtra and Ugadi in Southern states are also expected to support demand recovery for the coming weeks. A dealer in Chhattisgarh indicated some recovery in retail volumes for non-agri usage. While the expected 10-12% YoY decline here is steep, it is lower than the declines seen in the previous quarters. Overall discounts remain stable at INR30k-45k, with inventory levels at 5-7 weeks. No price hikes have been observed this month, but dealers anticipate OEMs may announce hikes in Apr’25. Lending conditions remain favorable, with LTV ratios at 90% and interest rates in the 7-9% range. Overall, we expect demand to improve in the coming months, supported by festive sentiment and strong agricultural prospects, giving a positive outlook for the near term. We expect dispatches for MM/Escorts to grow 13%/10%.

* Valuation and view: Demand remains weak in most segments for Mar’25. MSIL is our top pick among auto OEMs as its upcoming new launches are expected to continue to improve the mix and drive healthy earnings growth. We also like MM given the uptrend in tractors and healthy growth in UVs. Among ancillaries, we prefer MOTHERSO, ENDU and HAPPYFORG.

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