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Demand yet to pick up; dealers optimistic for festive revival

Onset of festivities fails to spark a resurgence in demand as yet

* Demand trends in Sep’24 remained weak across segments despite festivals such as the Ganesh festival and Onam. The demand weakness was further accentuated by the inauspicious Shraddh period in September. As a result, retail sales are likely to decline on a YoY basis across categories. The 2W retails are expected to dip 3-5% YoY in Sep’24. Further, 2W dealers have seen a flat to marginal decline YoY in retail sales in the 10-day Ganesh festival in Maharashtra. However, in anticipation of a good month-long festival season starting with the Navratras, dealers have seen an inventory buildup by OEMs. PV retails continue to remain weak and are likely to decline 8-10% YoY. CV retails are projected to decline 10-12% YoY due to weak underlying demand, though fleet utilization has remained steady. Tractor retails are also expected to drop 10-12% YoY. In Sep’24, dispatches are anticipated to grow YoY for 2Ws (+10%), tractors (+1%), 3Ws (+3%), and PVs (+4%), while dispatches are likely to decrease for CVs (-5%).

* 2Ws: Retail sales are expected to decline 3-5% YoY in Sep’24 primarily due to the inauspicious Shraddh period falling entirely in this month (vs. being split between Sep and Oct last year). Inquiries and bookings currently remain slow. To counter this, OEMs like HMCL have come up with a unique offer: whoever books a HMCL 2W with a token amount of INR1,100 between 18th Sep and 2nd Oct’24 (Shraddh period), would get a discount of INR1,000 during the delivery of the new vehicle in the Navratras. Despite this offer, bookings currently remain weak. In the 10-day Ganesh festival in Maharashtra, 2W dealers (that we interacted with) have seen a flat to marginal decline YoY across major regions, barring a few. However, retails on the day of Vishwakarma Pooja saw a strong double-digit growth in Bihar. However, demand for the entry-level 100cc motorcycle segment is not showing any major improvement. For HMCL, dealers have started receiving adequate supply of its Xtreme 125R. Bookings and inquiries for BJAUT’s Freedom 125cc motorcycle are largely stable, with some decline witnessed in a few regions where the motorcycle was initially launched. The on-road price of Freedom 125cc base variant with drum brakes is around INR109.2k (vs. INR90k/ INR91k for Splendor Plus/Passion Plus). For TVS, the newer version of Jupiter 110cc is well received by customers as it offers a 10% higher mileage and much better features for a marginal increase in pricing vis-àvis the outgoing model. There has been a price hike of INR500-700 in TVSL’s Raider and Apache. There are no discounts offered by OEMs to customers in Sep’24. In anticipation of a good festival season starting next month, inventory levels have risen with HMCL at 75-80 days, TVSL/HMSI at 50-55 days, BJAUT at 60 days, and RE at 30 days. We expect dispatches for BJAUT/HMCL/TVSL to grow ~14%/11%/8% YoY, while it is anticipated to decline ~2% YoY for RE.

* PVs: Retails are expected to decline 8-10% YoY. Conversion to bookings from inquiries is taking longer than expected across regions. As highlighted in our last channel check note, discounts have moderated by 5-10% MoM in Sep’24 for MSIL depending upon variants. TTMT announced price cuts across its range of vehicles except Punch. Price reductions have been in the range of INR10-80k /INR15-30k/INR15-60k/ INR50k-180k/INR50-160k for Nexon/Tigor/Tiago/Safari/ Harrier. Despite these reductions, there are additional discounts of INR15-25k on the models, including Punch. Test drive cars for TTMT’s ICE variant of Curvv have not yet reached the dealerships, leading to postponement of purchases by customers. MSIL is seeing an improvement in its Grand Vitara strong hybrid retails in UP mainly due to a reduction in road tax announcements by the government. M&M’s Thar Roxx test drives have commenced, with bookings open from 3rd Oct’24. Strong initial response to Thar Roxx has led to a discount of INR150k on the 3-door Thar. Inventory levels for MSIL stand at around 55-60 days, TTMT at 60 days, while the same for MM stand at 40-45 days. We expect dispatches for MSIL (including LCVs)/ M&M/TTMT to grow 3% /3.5%/7% YoY.

* CVs: Both MHCV and LCV retails are estimated to decline 10-12% YoY due to the seasonal effects of the monsoon. We are not seeing any major improvement in tendering processes by the government leading to postponement of purchases by fleet operators, especially in tippers. Fleet utilization levels remain steady at 65- 70%. This was driven by better off-take in consumer-based sectors such as agri, auto, and FMCG. Dispatches for AL/TTMT are likely to decline 5.0%/13.5% YoY.

* Tractors: Retails are likely to dip 15-20% YoY, as demand sentiments have not turned positive. In areas of UP where tractors are used for commercial purposes, retails are likely to decline 25-30% YoY. Retails during the Ganesh festival in Maharashtra have largely remained flat YoY. Rainfall has been satisfactory across regions. While regions like eastern UP were having deficit rainfall, it is now being compensated by extremely heavy rains in the last 4-5 days. Dealers believe that the positive effect of normal rainfall is expected to be seen in the next 2-3 months. There are discounts of INR10-15k/tractor for ESC, while it is INR4-5k for M&M (in the form of scratch card offers). The Tiger range of tractors launched by Sonalika is well accepted in the markets. Current inventory levels are around eight weeks, which we consider normal as we approach the festive season. We expect dispatches for MM/Escorts to remain flat YoY.

* Valuation and view: While we anticipate the 2W segment to continue outperforming other segments even in FY25, this appears to be fully priced-in after the recent strong rally in 2W stocks. MSIL is our top pick among auto OEMs as it continues to be a play on rural recovery with attractive valuation. We also like MM, given its healthy demand momentum in both SUVs and tractors for FY25.

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