IGI Logo

Demand remains weak across segments except tractors

The volumes reported by OEMs so far this month have largely aligned with our estimates. PVs and CVs were in line, while tractor volumes exceeded expectations. Among the reported figures, RE, Escorts, and M&M tractors outperformed estimates, while other OEMs met expectations. HMCL sharply underperformed our estimates in February. Overall, wholesale dispatches grew ~2% YoY for PVs, and 16% for tractors. However, 2W volumes declined ~4% YoY while CV volumes declined 8% YoY due to a 18% drop in LCVs, despite a 3% YoY growth in MHCVs. In PVs, we noted a sustained outperformance by both MSIL and M&M relative to peers. Demand across segments remains weak, except for tractors, where we expect dispatches to remain positive in the near term, driven by positive farm sentiment. Our top picks in OEMs are MSIL and MM.

* PVs (in line): PV wholesales grew 2% YoY, aligning with our expectations. Among listed peers, MSIL and MM outperformed during the month. MSIL's PV volumes rose 1% YoY to 199.4k units despite a high base. Its domestic SUV volumes increased 6% YoY, while non-SUV volumes remained largely flat, resulting in ~4% YoY growth in overall domestic volumes. However, exports declined 14% YoY. Further, MM’s UV volumes (including pick-ups) rose 19% YoY, reflecting sustained momentum in its SUV models. In contrast, Hyundai's domestic volumes declined 5% YoY, while exports grew 7% YoY, leading to an overall volume decline of 3% YoY to 58.7k units. Meanwhile, TTMT continued to underperform, with PV volumes declining 9% YoY. Feb wholesale dispatches have largely been in-line with our estimates and indicate a continued weakness in demand trend in the segment.

* 2Ws (Mixed): TVSL 2W volumes grew 10% YoY to ~404k units (est. 402k), as domestic volumes grew 4% YoY while exports grew 26% YoY. Within TVS, motorcycle/scooters grew 5%/24% YoY, while moped declined 17% YoY. 3W volumes grew 14% YoY. RE continues its healthy performance as it reported better-than-expected volumes at 90.7k units, up 19% YoY (est. 86.6k), wherein domestic/exports volume grew 19%/23% YoY. On the other hand, HMCL sales disappointed with 17% YoY decline in volumes at 388k units (est. 459k). BJAUT is yet to report its numbers.

* CVs (in line excl. AL): CV volume performance has largely been in line so far, excluding AL, which is yet to report its numbers. TTMT volumes declined 7% YoY to 32.5k units (est. 33.9k), while VECV volumes grew 9% YoY to 8.1k units (est. 7.99k). MHCV volumes increased 3% YoY, whereas LCV volumes declined 19% YoY for companies that have reported their numbers.

* Tractors (above estimate): MM continued to outperform Escorts in tractors. M&M tractor sales grew 18% YoY to 25.5k units vis-à-vis our expectations of 23.4k. Escorts reported a growth of 11% YoY to 8.6k units (est. 6.8k). Both the managements sounded positive on tractor demand outlook. MM, in its press release, indicated that tractor demand sentiment remains positive, driven by a good Kharif crop, a favorable Rabi outlook, increased agri credit, and continued government support.

* Valuation and view: As highlighted above, demand across segments remains weak, except for tractors, where we expect dispatches to remain positive in the near term, driven by positive farm sentiment. 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.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412