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Demand remains subdued in most segments except tractors

Demand remained weak in May’25 across key segments, except tractors. MM continued to outperform its peers in PVs and posted 21% YoY growth in UVs. MSIL saw steady 3% YoY growth, driven by 80% YoY growth in exports. However, Hyundai (-8%) and TTMT PV (-11%) underperformed peers. In 2Ws, TVSL’s total vehicle sales grew 16.6% YoY to 431k units (down 3% MoM). RE volumes grew 26% YoY to 89k units – slightly ahead of our estimate of 85k units. BJAUT posted 8% YoY growth in volumes, led primarily by 22% YoY growth in exports. HMCL continued to underperform peers with just 2% YoY growth in volumes. In CVs, VECV (+8%) continued to outperform its peers AL (+6%) and TTMT (-5%). Overall, CV retails are unlikely to have improved in May, while wholesales are likely to have seen positive growth due to inventory build-up in trucks ahead of the mandatory driver cabin regulations set to be implemented from Jun’25. In Tractors, MM (+10%) continued to outperform Escorts (1%). Tractor momentum is likely to remain healthy given favorable demand indicators. In May’25, RE, AL and VECV exceeded our estimates. On the other hand, TTMT PV and TVS posted sales below our estimates. Our top OEM picks remain MSIL and MM.

* PVs (in line): PV wholesales grew 1.5% YoY, in line with expectations. Among listed peers, MM continued to outperform peers. MM’s UV volumes rose 21% YoY (in line with estimates). Led by strong growth in UVs, its auto segment sales grew 17% YoY. MSIL sales grew 3% YoY (flat MoM) at 180k units (in line). Growth was largely driven by 80% YoY growth in exports over a low base, even as domestic sales declined 5% YoY. On the other hand, both Hyundai and TTMT continued to underperform. While Hyundai volumes were down 8% YoY (domestic sales down 11%), TTMT PV sales were down 11% YoY.

* 2Ws (mixed): BJAUT sales grew 8% YoY to 384k units (in line). While 2W sales were up 9% YoY, 3W sales grew 5% YoY. Growth was largely driven by 22% YoY growth in exports, even as domestic sales remained flat YoY. TVSL’s total vehicle sales grew 16.6% YoY to 431k units, below our estimate of 445k units. While 2W sales grew 16% YoY, 3W sales were up 46% YoY. Overall, exports grew 22% YoY to 118k units. EV sales grew 50% YoY to 28k units. HMCL sales grew 1% YoY to 508k units, in line with our estimate. Management has clarified that its retails remained healthy at ~500k units even in May’25. For the first two months, HMCL sales are down 21% YoY due to the supply chain issues in Apr’25. RE volumes grew 26% YoY to 89k units – slightly ahead of our estimate of 85k units. Exports posted robust growth of 82% YoY to 13,609 units and were the key growth driver in May’25.

* CVs (mixed): For TTMT, overall CV sales declined 5% YoY to 28,147 units (in line). While MHCV sales grew slightly under 1% YoY, LCV sales declined 10% YoY to 14.5k units. AL posted 5.5% YoY growth in CV volumes to 15,484 units (ahead of our estimate of 14k units). While MHCV sales were up 11% YoY, LCV sales declined 4% YoY. Within MHCVs, truck sales grew 12% YoY and bus sales grew 9% YoY. VECV continued to outperform its peers and posted 8% YoY growth to 7436 units (ahead of our estimate of 6.2k units). While retail sales are unlikely to have picked up in May’25, wholesales are likely to have seen positive growth due to inventory build-up in trucks ahead of the mandatory driver cabin regulations set to be implemented from Jun’25.

* Tractors (in line): Dispatches for tractors were largely in line with our estimates. For MM, tractor volume growth stood at 10% YoY (flat MoM) and was in line with our estimate. However, Escorts continued to underperform and posted 1% YoY growth in volume to 10.3k units (in line). Overall, tractor growth momentum is likely to continue in FY26 given expectations of a normal monsoon, sufficient reservoir levels and improved liquidity.

* Valuation and view: While overall demand remained weak in May’25, select players like MM, TVSL/RE and VECV continued to outperform their respective segments. MSIL is our top pick among auto OEMs as its upcoming new launches and the current export momentum should drive healthy earnings growth. We like MM given the uptrend in tractors and healthy growth in UVs. Among ancillaries, we prefer ENDU and HAPPYFORG.

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