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HMSI and MSIL outperform peers in their respective segments

* We have analyzed the segmental volume data for 1QFY25 across various segments. Volume growth in the 2W segment, at 20% YoY, continued to outperform the PV/CV segment growth of 3.0%/3.5% YoY in 1QFY25.

* We have observed that wholesale numbers during the quarter significantly exceeded retail sales. While 2W retails grew ~13% YoY, wholesale growth was 20% YoY, suggesting that some level of channel filling has already begun.

* Retail growth in PVs and CVs stood at ~2.5% and 0.7% YoY, respectively.

* HMSI experienced a notable resurgence in domestic 2W market share, with its supplies normalizing this year. It was the biggest beneficiary in the domestic 2W market, having gained 560bp market share to reach 29.1%. HMSI significantly narrowed the gap with the market leader HMCL, whose share stood at 30.3%.

* In the PV segment, both MSIL and Toyota reported healthy market share gains in the Car and SUV categories. However, despite its market share gains in both categories, MSIL actually witnessed a 70bp contraction in the overall PV market share to 40.8% due to the mix impact.

* In CVs, growth was largely driven by the bus segment, which rose 27% YoY. In contrast, the goods segment saw flat YoY growth in 1QFY25. Within CVs, TTMT experienced a healthy recovery in market share. However, it continued to lose share in LCVs. On the other hand, AL lost share in the MHCV goods category, but gained in all other segments. M&M continued to gain market share in the LCV goods segment, led by its pick-up range.

Update on 2Ws: HMSI rebounds strongly with normalization of capacity

* The domestic 2W industry volumes rose 20% YoY in 1QFY25. While motorcycles and mopeds increased ~17% YoY, scooters (ICE) grew ~27% YoY.

* HMSI was the best performer in the domestic 2W market, having gained 560bp YoY market share to reach 29.1% in 1QFY25. With this growth rate, it came within striking distance of market leader HMCL’s share at 30.3% (-210bp YoY).

Motorcycle update:

* All the OEMs (ex-RE) reported a YoY volume growth.

* HMSI outperformed the segment with ~71% YoY volume growth. Among other large peers, only HMCL managed double-digit volume growth of 13.5% YoY.

* Given its significant outperformance, HMSI gained ~610bp market share YoY to reach 19.4%. Scooters (ICE) update:

* In this segment, all the major OEMs (ex-HMCL) reported healthy double-digit YoY volume growth in 1QFY25. Volumes of HMSI/Suzuki/TVSL grew ~35%/30%/ 20% YoY, while those of HMCL declined 8% YoY.

* HMSI gained 290bp YoY market share even in the scooters category to reach 51.7%. The only other company to have gained share (+30bp YoY to 16%) in 1QFY25 was Suzuki.

* The market share of TVSL/HMCL dipped 135bp/180bp YoY to 21.9%/4.9% YoY.

Update on PVs: MSIL and Toyota gain market share across segments

* The PV industry witnessed a much slower volume growth of 3% YoY in 1QFY25. Its growth was capped primarily by the slowdown in the Car segment (-17.5% YoY). Conversely, the UV demand momentum remained healthy at 18% YoY.

* Hence, UV’s contribution to total PVs rose to 62.9% in 1QFY25 from 60% in FY24.

Car segment:

* MSIL gained ~350bp share to reach 65.1%, while Toyota gained ~90bp share to reach 3.9%.

* Conversely, Hyundai/TTMT/Honda lost 140bp/140bp/110bp YoY share to 14.3%/ 11.0%/2.5%.

UV segment:

* In the UV segment, the key YoY outperformers were: MSIL (+29%), MM (+24%), Hyundai (+20%), and Toyota (+42%). ? Conversely, the key YoY underperformers were: TTMT (-13%) and Kia (-1%).

* MSIL gained 220bp YoY market share to reach 25.3%, while MM gained 90bp YoY share to 19.2%. Hyundai gained 30bp YoY share to reach 15.6%, while Toyota gained 140bp YoY share to reach 8.5%. Meanwhile, TTMT/Kia lost 70bp/180bp YoY share to 15.6%/9.4%.

Domestic PVs:

* In the overall domestic PV segment, the key YoY gainers were: MM (+210bp to 12.1%), Hyundai (+140bp to 9.8%), and Toyota (+150bp to 5.3%).

* However, MSIL actually lost 70bp to reach 40.8%, given its significantly higher share in the Cars segment (which is declining). Update on CVs: Passenger segment leads the entire CV growth in 1QFY25

* CV volumes grew 3.5% YoY in 1QFY25 despite the election-related headwinds.

* The growth was largely driven by the MHCV segment, which rose ~10% YoY. However, LCV volumes remained flat YoY. Within both of these categories, the passenger segment drove overall growth (at +27% YoY). The volumes in the goods segment remained flattish YoY.

* Within overall domestic CVs, there was no material change in the market share of the top 3 players.

MHCV segment:

* Within MHCVs, volumes of the goods category grew ~3% YoY, while those of the passenger segment jumped ~53% YoY.

* MHCV goods: TTMT’s market share improved ~340bp YoY to 50.7%. In contrast, both AL/VECV witnessed a decline of 170bp/100bp YoY to 30.0%/15.8%.

* MHCV passenger: Both TTMT and AL reported market share gains of 940bp/ 540bp YoY to 33.0%/33.3%. On the contrary, VECV reported a sharp correction of ~10.3pp YoY in its market share to 24.9%.

LCV segment:

* Within LCVs, volumes for the goods category declined ~1% YoY, while the same grew ~8% YoY for the passenger category.

* LCV goods: MM/AL gained market share of 130bp/40bp YoY to 48.3%/12.1%. However, TTMT reported a contraction of 130bp to reach 30.8%.

* LCV passenger: All the players (ex-TTMT) reported market share gains. Force Motors/AL clocked market share gains of ~520bp/80bp YoY to 41.5%/2.7%. In contrast, TTMT’s market share declined ~890bp YoY to 27.0%.

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. While we expect 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.

* Hence, one will have to make selective micro strategies to outperform from hereon. In this backdrop, MSIL and MM are our top picks in Auto OEMs. Among Auto Ancillaries, our top picks are CRAFTSMA, MOTHERSO and HAPPYFORG.

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