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Jun’24 wholesales remain a mixed bag

Tractor wholesales outshine despite weak retails In 2Ws, while HMCL’s numbers were ahead of our estimates, TVSL/BJAUT/RE’s numbers remained in line. In PVs, while domestic dispatches of MSIL/MM were in line, exports of MSIL surprised. TTMT disappointed as the company focused on lean channel inventory against the backdrop of weak retail sales. In CVs, both TTMT and AL’s wholesales remained in line and declined by a single digit YoY, while VECV surprised with double-digit YoY growth. The CV industry’s demand held up well in 1QFY25, and we continue to expect the industry to post mid-single-digit growth for FY25. In tractors, both M&M and ESC’s sales were ahead of estimates, with the progress of monsoon being the key monitorable. We expect PVs and CVs to post 6% volume CAGR each over FY24-26. We anticipate the 2W industry to clock a 9% volume CAGR during the same period. In Auto OEMs, MSIL and AL are our top picks.

*  2Ws (above est.): Wholesale dispatches for HMCL (above est.) /BJAUT (in line)/ TVSL (in line) grew 15%/3%/6% YoY to 503.45k/303.6k/322.2k units. Export dispatches for TVSL declined 3% YoY to 66.4k units but grew 7% YoY to 177.2k units for BJAUT albeit on a low base. TVSL indicated that export dispatches were hit by lower container availability on account of the Red Sea crisis. RE posted 5% YoY decline in wholesales at 73,141 units (in line).

*  PVs (in line with est.): MSIL’s volumes for Jun’24 came in at 179.2k units (grew 12% YoY) and were above our estimates largely due to strong exports. While domestic volumes for MSIL grew in line at 6% YoY to 148.2k units, exports surged 57% YoY to a record high of 31k units (1QFY25 export wholesales have grown 12% YoY). MM’s UV volumes (including pick-ups) were up 11% YoY to 59.9k units due to the strong growth of UVs at 23% YoY. TTMT’s PV volumes declined 8% YoY to 43.6k units and were below our estimates. TTMT indicated that it has proactively reduced wholesales to keep channel inventory under control amid a weak retail demand. Further, the EV fleet sales were affected majorly in 1QFY25 due to expiry of FAME2 subsidy in Mar’24 (TTMT’s EV sales declined 34% YoY to 4,657 units). The company remains optimistic of a pick-up in demand in the coming months as enquiry levels remain healthy and facilitated by the onset of festive season from August. Overall, both UV and Car segments grew 9.0%/7.5% YoY.

*  CVs (in line with est): Overall MHCVs grew 2% YoY, while LCVs declined 5% YoY. CV sales for TTMT declined 7% YoY (MHCVs grew 3% YoY while LCVs declined 14% YoY) in Jun’24 (in line with estimates) to 32k units. The company indicated that while HCV demand held up, market sentiment for the MCV segment remained positive. Even Bus demand continued to remain positive. Going forward, CV demand is likely to be steady on the back of a healthy monsoon forecast, expectation of policy continuity, and continuous push for infra. AL’s wholesales declined 2% YoY to 14.9k units (in line with est.). VECV’s CV sales grew 11% YoY to 7.4k units (above est.).

*  Tractors (above est): MM’s tractor volumes grew 6% YoY to 47.3k units (above est.). As per M&M, the government's announcement of increased food grain production, an increase in MSP for major Kharif crops, and further advancement of the Southwest monsoon across the country have driven positive sentiments among farmers. With retail momentum having picked up, supported by land preparation and an increase in Kharif crop sowing, demand for tractors is likely to remain strong in the upcoming months. For Escorts, tractor sales declined 3% YoY at 9.6k units (above est.). As per ESC’s management, retail sales in its key market saw a delayed pick up. With the monsoon progressing well and continuing government support, including an increase in MSP, ESC anticipates demand to improve in the coming months

*  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. Against this backdrop, MSIL remains our top pick in Auto OEMs along with AL. Among Auto Ancillaries, our top picks are CRAFTSMA, MOTHERSO, and HAPPYFORG.

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