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Demand revival remains elusive

Most sub-segments to post low- to mid-single-digit retail growth in Jan

* In January, we are not seeing any signs of pick-up on the ground for any of the auto segments. 2W sales are likely to post 1-3% YoY growth, driven by steady rural demand. PV retails are also likely to post low-single-digit growth YoY. Discounts in PVs, although low MoM, are higher by 20-25% on a YoY basis, according to our checks. CV goods demand remained muted, with fleet utilization moderating, but the bus segment showed strength with expected mid-teens YoY growth in retails. Tractor sales are likely to see 3-4% YoY increase, with non-agri demand improving and regional trends varying. Overall, we expect Jan’25 dispatches for PV/2W/tractors/CVs to grow ~1.5%/4%/8%/1% 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. Growth has been observed across both scooters and premium motorcycles, positioning OEMs like TVS and RE for outperformance. Demand for entry-level models continues to remain weak. TVS is expected to outperform its peers this month. This is mainly driven by outperformance in scooters, particularly due to the strong response to the new Jupiter, which currently has a waiting period of ~3 weeks. The company has also implemented a minor price hike. For Hero MotoCorp, Xtreme125R continues to be its key growth driver, while scooter sales fail to revive despite new launches. Inventory levels are likely to be normal at ~4-5 weeks for 2Ws. All discounts offered during the festive season have now been withdrawn. For Jan’25, we expect dispatches for HMCL/BJAUT/TVSL/RE to grow 1%/3%/8%/12% YoY.

* PVs: We expect PV retails to continue to grow in low-single digits, led by steady demand in the North, West, and Central regions, while growth in the South remained relatively subdued. However, cars continue to see weak demand. A notable trend we observed was the continued strength in rural demand. The growth in PV volumes was supported by attractive discounts and strong traction from new model launches, with our feedback indicating that discounts are ~20- 25% higher YoY. Stronger retail sales have brought inventory levels below the normal range of 3-4 weeks, creating room for inventory push. Feedback for the new Dzire has been positive, with customers particularly appreciating its mileage. The LXi variant has no waiting period, while other variants have a waiting period exceeding six weeks. Similarly, the waiting period for the Creta EV stands at four months. Despite elevated discounts, demand in the Southern markets remained lackluster, with no significant growth observed. We expect dispatches for MSIL/Hyundai/TTMT PV to decline 1% YoY each, while the same for M&M to grow ~11% YoY during the month

* CVs: Driven by a slight pickup in replacement demand, we anticipate CV retail sales to grow 2-3% YoY. However, overall CV demand remains subdued, and contrary to expectations of a recovery, we did not observe any meaningful improvement. Our checks indicate that freight rates remained stable MoM, while fleet utilization softened to 65-70% (75-80% in Oct-Nov). Demand weakness persisted in segments like white goods and construction, though this was partially offset by growth in agriculture and auto categories. Additionally, we noted some pressure on return loads in states such as Rajasthan and MP. Inventory level has declined to 2-3 weeks (vs 3-4 weeks MoM). On a positive note, the bus segment showed some growth, with retail volumes expected to rise ~15-17% YoY. We expect dispatches for TTMT/AL/VECV to grow ~1.5%/3%/3% YoY in Jan’25

* Tractors: We expect tractor retail volumes to grow 3-4% YoY this month, with an average inventory at around 40 days. Non-agri tractor demand is also showing improvement, with a smaller YoY decline of 3-4% YoY. Demand across key regions reflects a healthy growth trend, with regional variations influencing overall market performance. Punjab is seeing strong demand. No price hikes have been reported, and discounts are around INR30k. Gujarat also shows good growth, with a price increase of about 2%, while discounts are higher at ~INR60k but show a declining trend. Inventory in this region is about 1.5 months, across key players like MM, TAFE, and Escorts. In Maharashtra, growth is slower, with Johwar prices between INR 2,500-2,800, and discounts increasing to INR40k50k. Inventory levels are around 60 days, with Swaraj and John Deere having higher inventory. Our interaction in MP too suggested healthy sales, with expectations for demand to improve once wheat harvesting begins. We expect volumes for MM and ESCORTS to grow by 8%/9% YoY in Jan’25.

* Valuation and view: Except for the tractor segment, which is experiencing a healthy demand uptick, we are not seeing any signs of pick-up in growth in any other key auto segments at the moment. 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.

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