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Sector performance

The month of September was a decent month for the auto companies. 2Ws posted better recovery as compared to last month, while on yoy basis, the growth was lower than the mom growth. For TVS and Hero, we saw positive growth both mom and yoy, while for Bajaj Auto, the 3W growth was so high that it offset the negative 2W growth yoy. On a sequential basis, all the 3 companies posted robust double digit growth. 2W exports have shown some signs of improvement sequentially as well as yoy, which can be an important parameter to trace it going forward. This growth was flattish for Bajaj Auto and 8% yoy and 15% mom for TVS. This is a strong traction after huge negative growths witnessed over the last one year. We believe the mom growth seen in the auto sector overall, is the result of inventory build-up on the back of festive season in October and November. On the PV front, all the companies have posted strong growth led by the SUV growth story. On the CV side of the sector, we witnessed both Ashok Leyland and Tata Motors posting a strong growth, which we can call erratic given an uncertain trend observed every month. Even tractors, LCVs and 3Ws have all posted strong growths on a mom basis. Tractors witnessed a reduction in volumes yoy as El Nino impacted monsoons and ended up with a deficit at 94.4% of LPA thus recording below average rainfall in some of the regions. This along with the cyclicality observed in this segment, shall end up the year with muted growth. The companies have however built up inventories anticipating a strong festive season offtake, however it will all depend on the North East rains in H2 and related Rabi sowing.

Company wise performance

Among the PV OEMs, MSIL has posted 1.81 lakh units. On a yoy basis, the total sales in the domestic markets came in 1.5% yoy while the exports grew by 5.2% yoy. The domestic growth was slightly muted as compared to last month’s high base. Even on yoy basis, the growth was low. Going forward, the easing up of chip shortage should lead to catering of the pent up demand. Also expectations of a good festive season shall lead to volumes moving up in the next couple of months. Also last year, Navratra was in September, which justifies the high base and low growth yoy. Small cars in September de-grew by 65% yoy and 15.2% mom. The compact car segment was also down, but by 5% yoy and 5.4% mom. The SUV segment grew 82% yoy and 1% sequentially.

TaMo’s PV segment saw a 6% yoy and 2.4% dip sequentially. M&M’s SUV segment on the other hand, jumped by 20.4% yoy and 10.7% mom. CV division was up 10.8% yoy and 1.6% up mom despite the impact of BS VI Phase-2 implementation and OBD-2 norms. M&M’s tractor business in the domestic markets fell by 10.8% yoy and jumped by 104% mom on inventory build-up before the festive. However, Escorts Kubota’s domestic tractor sales dropped 11.2% yoy and grew by 95% mom on inventory build -up. With below normal monsoon tractor sales may get impacted negatively in FY 24E

In 2W segment Bajaj reported a growth of 9.2% yoy fall and 25.9% mom gain for its domestic motorcycles, while in exports motorcycles fell by 0.2% yoy. The sequential growth of 0.8% is a positive sign indicating exports may have bottomed out, but it is too early to predict a strong bounce back. However, we need to follow this trend closely in the ensuing months. Their 3W segment moved up by 59.6% yoy and 14.5% mom domestically on a good pick up in the CNG portfolio and e-3Ws. Exports 3Ws however disappointed by posting a de-growth of 3.3% yoy and grew by 15.7% mom. Hero Motocorp has posted 3.2% yoy and 10% mom growth on inventory build-up and some demand for its existing portfolio.

TVS 2W segment reported 6.2% yoy growth of which motorcycle segment grew by 10.1% yoy and 21.8% mom, while scooters grew by 7.7% yoy, on robust e-scooter I-Qube sales (20.3K in September v/s 4.9K units in September 22). The sales seemed to have grown despite the impact of FAME-2 subsidy. Mopeds segment of TVS grew 23% mom and fell by 6.1% yoy. 3Ws fell 9.7% yoy on competition from the market leader Bajaj Auto while growing by 13.5% mom.

Our view

We witnessed a strong September for most of the segments other than PVs (high base). SUV segment was the best performer. 2Ws also performed well on sequential basis, as inventory build-up happened on anticipation of good festive season. Exports also saw slight improvement in the month. Going forward, the impact of currently prevailing El Nino needs to be seen on the rural centric segments like 2Ws and tractors. CVs have posted a strong performance post decline seen in previous month. The impact of BS VI phase-2 implementation, OBD-2 norms and high base seem to be fading off.

We remain positive on the sector. However, our choice is in the following order –PVs, 2Ws and CVs. Stocks specifically, within the 2Ws, we like Bajaj Auto as we expect the exports coming back on track gradually seen in August and September to continue hereon as things are easing out in Africa. However, still there is some uncertainty surrounding it, but better than earlier. Also the EV strength gaining from Chetak and upcoming launch of e-3W can be additional positives. Domestically on the motorcycles side we expect new launches to assist posting decent numbers. TVS too looks promising with its dominance in EV scooters and solid performance by its star performers like NTorq, Jupiter, Apache, Raider and the recently launched premium bike Ronnin. While on the PV side, we like M&M because of its strength in the proliferating SUV segment, prudent capital allocation and a robust growth strategy in UVs, EVs and CVs. We also like MSIL on the PV side because of its wide portfolio of vehicles and inroads into the SUV industry. We like Ashok Leyland within CVs as it has a diversified revenue base deriving from LCVs, Defense, MHCVs, exports and spares. Every dip in the stocks mentioned above, shall provide good opportunities for investors to enter into them from medium to long term perspective. Lower than expected monsoon may have bearing on the sector in H2 FY 24 and H1 of FY25.

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