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Demand remains weak across most segments

SIAM forecasts a bleak outlook for PVs and CVs in FY26 as well

* In Feb’25, we continue to see weak demand trends across most auto segments. 2W sales are likely to post 1-3% YoY growth, driven by steady rural demand. In 2Ws, scooters are seeing better demand relative to motorcycles. PV retails are likely to post a low single-digit decline YoY. Despite demand weakness, most PV OEMs have raised prices by about 1% in Feb. CV demand also remains weak, with industry retails likely to decline 6-8% YoY. Tractor sales, in the regions we spoke to in MH and Karnataka, were weak due to a decline in crop prices. Overall, we expect Feb’25 dispatches for PV/2Ws/ tractors/CVs to grow ~2.5%/5%/7%/-3% YoY.

* 2Ws: Retails during the month are expected to grow 1-3% YoY, reflecting a modest pace of growth. However, rural markets continue to outperform urban areas, driven by improved agricultural sentiments and seasonal marriage demand, leading to stronger sales in states like MP and UP. One other trend observed was that scooter demand is better than motorcycles. On the back of weak demand, HMCL has cut prices of its HF Deluxe by about INR4k in select markets. However, its Xtreme125R continues to see good demand. For BJAUT, while Chetak sales have picked up, motorcycle sales remain weak. Chetak is doing better than TVS iQube in select markets given its metal body. Few dealers indicated that the Pulsar N125 is not doing well, and hence stock has increased for this model. Freedom is doing well in select urban markets but seeing very weak acceptance in rural regions. TVS’ new Jupiter is doing very well and continues to gain share across key markets. Even Ronin has picked up for TVS over the last few months. Among 2W OEMs, only HMSI has launched OBD2- based models, while others are anticipated to launch the same in Mar’25. For RE, the increased availability of models and the company’s marketing push is helping improve retails. Inventory levels across most 2W OEMs remain normal at about 35-40 days. For Feb’25, we expect dispatches for HMCL/BJAUT/TVSL/RE to grow -2%/8%/9%/14% YoY.

* PVs: Retails are expected to decline 2-3% YoY this month. Footfalls continue to rise in rural regions, while urban demand remains stagnant. Moreover, entrylevel demand remains subdued due to tighter and more selective financing, with no signs of green shoots in this segment yet. Our interactions with MSIL dealers suggest that CNG models continue to see steady demand, further reinforced by the strong response to the new Dzire. Brezza CNG has also picked up in many markets as per dealers. Hyundai's Creta EV is attracting significant interest with positive customer feedback, though conversions remain moderate. While it is still early to gauge the full impact, a Mumbai-based dealer indicated that ~20% of this month's bookings have been for the Creta EV. Inquiries for M&M's newly launched Be6 and Xev9e have gained traction, with deliveries set to begin in Apr-May’25. Despite the current slowdown, dealers expect a demand recovery in March. OEMs such as MSIL and Hyundai have raised prices by about 1% in JanFeb’25. Discounts, although high, have reduced from Dec’24 levels. Inventory levels have increased compared to last month but remain comfortable at 4-5 weeks. We expect dispatches for MSIL and M&M to grow 2% /12% YoY while volumes for TTMT to decline 7% YoY. Volumes for Hyundai are expected to remain flattish YoY.

* CVs: We expect a retail volume decline of 6-8% YoY for the month. The CV segment continues to face a slowdown, with small players struggling and financiers remaining cautious, leading to selective financing that is weighing on overall demand. Freight rates remain stagnant, and while demand is expected to stay sluggish, channel partners believe the decline is not as severe as in previous downcycles. OEMs are maintaining discounts in the 6-7% range but are offering benefits on AMC instead to compensate for the weak demand. Tipper demand has improved, driven by increased government spending in most of the regions, while agri-related demand is expected to pick up in March. Fleet utilization stands at 75-80%, and inventory levels have risen to 4-5 weeks due to the seasonal impact of March year-end sales. We are observing that both TTMT and AL are efficiently managing the inventory, which should help them maintain the discount level. We expect dispatches for TTMT CV to dip 3% YoY while the same should grow 2%/8% YoY for AL and VECV respectively.

* Tractors: Our channel check suggests a retail volume decline of 4-5% YoY as tractor demand remained weak across regions, with overall sentiment subdued due to lower crop prices. In certain regions like MH, and Karnataka, crop prices of toor, soybean, and cotton declined up to 20-25% than the usual prices, thereby dampening overall footfalls. On the other hand, non-agri tractor demand too remained weak as we expect a volume decline of ~16-18% in this category. Inventory levels were generally in the range of 40-45 days, with no major price hikes. Discounts remained stable at around INR40-45k, and LTV ratios varied between 70% and 90%, with financing being slightly stringent this month. The competitive intensity was observed in certain pockets like Punjab, primarily due to lower-priced offerings from rivals. We expect dispatches for M&M and Escorts to grow 8% / 5% YoY

* Valuation and view:

Demand continues to remain weak across most segments for Feb’25. MSIL is our top pick among auto OEMs, as its upcoming new launches are expected to continue to help improve the 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.