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Premium cars continue to shine; CV demand is stabilising

We recently interacted with dealers of Maruti Suzuki, Honda Cars and Tata Motors CVs in and around the city of Kochi (in Kerala). Key takeaways from our dealer interactions include: 1) Value-for-money SUVs continue to drive retail demand, where customers are ready to pay in excess of INR 1.2mn on-road prices; 2) hybrid-model demand is being driven by status quotient of owning environment-friendly model and not unit economics; 3) demand for entry-level hatchbacks and sedans continues to be subdued, operating with higher discounts and elevated inventory; 4) M&HCV demand is growing at a lower rate of sub-10%, and SCV demand remains flattish YoY. Freight rates are slightly lower led by rising competition. Discounts are down ~8-10% in the past 1 year, putting TTMT market share under pressure.

NEXA: Driving turnaround for MSIL

We met MSIL dealers, both for NEXA and Arena, and situation seems to be poles apart for them. Inventory levels in NEXA outlets seem pretty much under control on an overall basis with Ignis inventory being as high as ~50-60 days vs rest of the portfolio operating on waiting basis. Supply of Fronx is improving every month and dealer is expecting to drive full year overall retails growth by ~85% YoY. Despite the strength of Jimny, being a 5-door light weight all-wheel drive model with easy manoeuvrability, INR 1.5mn on road price vs Thar RWD at similar price, the dealer is expecting limited target market for it. Barring Ignis, there is no discount on the rest of models. Retails in Apr-Jun’23 were at an average of ~160 units p.m., with Jul’23 at 220 units and Aug’23 at ~320 (led by Onam). This is likely to remain above ~220 units p.m. for the rest of the year, driving annual volume out of dealership to ~2.5-3k units.

Arena: Going through a tough phase, no reprieve visible

Arena outlets, retailing the weaker models of CSK (Celerio, S-Presso and K10), are operating at inventory levels of 45+ days. With key festive season of Onam being over now, dealer is expecting inventory to come down by Oct’23 end to ~35 days led by lower offtake. Demand for Swift and Brezza remains steady vs weak CSK brands, resulting in much lower discounts for them vs CSK models (overall benefits as high as ~8-10%). Dealer is expecting hefty Onam special discounts to normalise down in Sep-Oct’23 along with inventory rationalisation. They are expecting overall volume for the year to be at best flat as CSK models continue to witness subdued retail demand for more than a year now

CVs: Tippers driving demand; weak haulage and SCVs

As per Tata Motors’ CV dealer, within M&HCVs, tippers are doing well as against flattish demand for haulage and cargo models (container carriers). Freight rates have seen slight pressure in recent months with rising supply and competition and thus fleet owner profitability has eroded slightly, though is still profitable. Bulk carrier mix in the market is now ~70% vs ~50% mix in earlier cycles. Goods M&HCV discounts by TTMT has come down from ~15% of MRP levels to ~5-8% amidst no price hikes (barring regulatory hikes) in the past 1- year and that has partly cost in terms of market share, too. SCV demand is steady, and TTMT has launched its EV SCV recently on a pilot basis.

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