IGI Logo

Demand remains weak in most segments, except 2Ws

* Demand trends in Aug’24 remained weak in most segments, except 2Ws. PV demand continued to moderate, as we noted a 6-8% YoY drop in retails for the month as customers deferred purchases, expecting better discounts in Sep’24. As a result, inventory remained high for PV OEMs. In 2Ws, retails are expected to grow by 1-3% YoY, aided by a positive customer response to new models like Bajaj Freedom 125, TVS Jupiter 110cc, and RE Guerilla. However, unlike PVs, inventory in 2Ws is still at comfortable level for OEMs. CV retails are expected to decline 10-12% YoY due to the monsoon, though fleet utilization has improved to 65-70%. Tractor retails are also expected to drop 13-15% YoY as the full impact of the monsoon is yet to be observed in most regions. In Aug’24, dispatches are expected to grow YoY for 2Ws (3.5%), tractors (7%) and 3Ws (7%), while they are expected to decline for CVs (-5%) and PVs (-2.5%).

* 2Ws: Retail sales are anticipated to grow 1-3% YoY in Aug’24. Walk-ins and enquiries are improving ahead of regional festivals (Ganesh Chaturthi and Onam) beginning in Sep’24. BJAUT's Freedom 125 has been launched in Kerala, Karnataka and Delhi. Channel partners have consistently reported a healthy flow of bookings; however, vehicle availability remains a challenge, with dealers quoting a waiting period of 15 days to 1 month, depending on the region. The top-end variant with disc brakes and an LED headlamp is particularly in high demand. For Royal Enfield, the newly launched Guerilla has received an encouraging response. However, logistical issues have restricted dispatches to dealers, resulting in a waiting period of 30-40 days. For HMCL, Xtreme 125R supplies have improved MoM and dealers are receiving 70-80% allocations against their requirement. However, Xtreme remains the key growth driver for HMCL as 100cc demand continues to languish. For TVS Motors, the refreshed version of Jupiter 110cc has reached dealerships and initial feedback from customers is positive. It is powered by an all-new engine and gets a host of new features, including colored LCD instrument cluster, DRLs at front and back, higher boot space like its 125cc sibling, etc. without any material price difference vs. the outgoing model. As a result, dealers expect a further market share gain for TVSL in the 110cc segment. Inventory in 2Ws is still not an area of concern as it currently stands at 60 days for HMCL, 40 days for TVSL and HMSI, and 45-50 days for BJAUT, while RE's inventory stands at ~2-3 weeks. We expect dispatches for HMCL/RE to decline ~2%/5% YoY, while they are expected to grow ~8%/10% for TVSL/BJAUT.

* PVs: Retail sales in Aug’24 are expected to decline by ~6-8% YoY as demand continued to moderate in PVs during the month. Walk-ins have been steady but customers are deferring purchases to the next month in anticipation of better discounts. However, dealers expect discounts to remain flat or see a slight decline next month from Aug’24 levels, with the onset of the festive season. For Tata Motors, the launch of Curvv did manage to create some excitement but given that it is an EV at a slightly higher price point and a Coupe, conversions were limited. Curvv EV currently has a waiting period of 30 days. Dealers are now eagerly waiting for the launch of the ICE variants of the model, which they believe is likely to bring back some lost momentum for TTMT. MM’s XUV3XO mid-level variants (MX3 and AX5) command a waiting period of 30-35 days, base variants have a waiting period of six months and top variants have 3-4 months. While Thar Roxx has been launched, dealers await delivery of the product, which is expected by Oct’24. For MSIL, discounts have declined 10% MoM for the ARENA channel but increased by 5-7% MoM for the NEXA channel. TTMT increased discounts to INR20k (from INR10k last month) on its best-selling compact SUV, Punch, while Nexon continues to command a discount of INR100k on some of its variants. Inventory stands at around 55-60 days for MSIL, 50 days for TTMT and 40-45 days for MM. We expect dispatches to decline 5.5% YoY for MSIL (including LCVs) and increase 4%/1% for MM and TTMT.

* CVs: Both MHCV and LCV retails are estimated to decline by 10-12% YoY due to the seasonal effects of the monsoon in the first half of Aug’24 and persistent weakness even after the general elections. The cargo segment remains weak, while the tipper segment presents mixed performance. The active monsoon has slowed down mining and construction activities across most regions, resulting in reduced movement of tippers. However, a positive development this month is the rise in fleet utilization levels, now at 65-70%, compared to 55-65% in recent months. This was driven by better off-take in consumer-based sectors such as agri, auto and FMCG. Discounts remain stable, with larger fleet operators able to secure better deals compared to smaller operators. Inventory stands at 30 days for Ashok Leyland (AL) and 35-40 days for Tata Motors (TTMT). Dispatches for AL/TTMT are expected to decline 7%/13% YoY.

* Tractors: Retails are expected to decline by 13-15% YoY, as the full impact of the monsoon is yet to be observed in most regions. Demand in the southern states like Telangana remains weak, with our channel checks indicating a decline of around 18-20%. Meanwhile, although demand recovery was expected in the northern regions, we expect this to pick up during the upcoming festive season. The monsoon has been favorable in states like Madhya Pradesh and Gujarat, and its positive effects are likely to be seen after the harvest. However, this month, we observed a volume decline of 10-12% YoY in states like Madhya Pradesh and Gujarat. For the non-agricultural segment, volumes are expected to decline by 18-20% YoY. Current inventory levels are around 8 weeks, which we consider normal as we approach the festive season. We expect dispatches for MM/Escorts to grow ~8%/4% YoY.

* Valuation and view: It is now an established fact that the majority of easy gains in auto OEM stocks are now behind us, as we have witnessed significant volume growth across segments over the last two years, and input costs also appear to have bottomed out. Hence, one will have to make selective micro strategies to outperform from hereon. In this backdrop, MSIL is our top pick among auto OEMs as it is well placed for the structural transition toward new technologies and market share gains in SUVs. We also like MM given a pure play in the growing SUV segment, a healthy order book and a play for a positive tractor cycle. Among auto ancillaries, our top picks are MOTHERSO and CRAFTSMA.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412