Sector Update | 27 January 2021
Automobiles
“The rabi crop sowing has
been extremely good and the
crop will be very good,
perhaps one of the best rabi
crop that India has ever seen.
The farmer income is very
good and therefore there is no
reason why there should be
any let up in the agri growth in
India, at least for the rest of
this year.” –
Dr. Pawan
Goenka, MD & CEO, M&M.
PC, CV, Tractor maintain optimism; 2W loses sheen…
…PV wholesales weighed by supply constraints
Demand in Jan’21 is better and discounts remain low v/s last year. Inventory is lower
than normal for PV and Tractor, leaving headroom for higher inventory filings in the
coming months. Wholesales are expected to grow, replenishing the abnormally low
inventory for PV and Tractor.
Our interaction with leading industry channel partners reflects optimism (ex-2W). 2W
witnessed unexpected slowdown with 30–45 days’ inventory; PV inventory remains at
minimal levels (<7 days), with a waiting period of 4–6 weeks for fast-selling models.
M&HCV continues to grow on the back of strong demand from
Infrastructure/Construction, while the Cargo segment is recovering slowly with an
increase in capacity utilization. Demand for Tractor remains strong, with 10–30 days’
inventory. Overall consumer sentiment has improved with the start of vaccination
drives.
Wholesales are expected to grow YoY in Jan’21 on a low base for all segments,
excluding 3W. In Jan’21, wholesale volumes are estimated to grow at 7.4% for 2W (due
to slow demand) and 6.2% for PV (restricted by supply-side issues). CV volumes are
likely to grow 16.8% (LCV – growth of 22.8%, M&HCV – growth of 10%). Wholesale
volumes for Tractor are expected to grow 20.7% YoY on robust demand.
2W: Subdued demand led to decline in retail sales and a delayed wedding season
added to woes. OEMs took a price hike of 2–3% across portfolios; only a few models
were discounted. Dealers are holding inventory of 1–1.5 months. RE has a waiting
period of 2–4 weeks for Classic/Bullet, while Meteor has waiting of 12–14 weeks. We
expect ~16% growth in wholesales for TVS, 11.7% for BJAUT 2W (3% decline in
domestic 2W), 9% for RE, and flat for HMCL.
PV: The strong demand momentum continues in PV; however, retail sales remain
restricted by supply-side challenges. PV has a high waiting period across OEMs. TTMT
continues to benefit from a refreshed product portfolio and the recent launches. There
is increased interest in the company’s fitted CNG models due to higher petrol prices.
Volumes are expected to grow ~8.1% for MSIL, while MM’s volumes would decline
15% due to supply chain constraints.
CV: Demand for M&HCV from the Infrastructure segment remains strong, and Cargo is
recovering, albeit at a slower-than-expected pace. OEM have increased price by 2–3%,
while keeping discounts stable at 15–17%. Inquiries are better than last year, but
transporters are holding back purchases on the expectation of higher discounts. TTMT
and Bharat Benz are better off than competitors on the back of their higher tonnage
portfolios. While LTV is stable at 80–85%, financiers are relaxing credit terms and
increasing their loan books. Higher tonnage segments continue to dominate owing to
higher demand from the Infrastructure segment. The growth momentum in LCV and
SCV demand continues. The launch of AL’s Bada Dost in the remaining parts of India
would further boost LCV sales. We expect AL’s wholesales to grow 25.6% YoY (10% for
M&HCV) and growth of 8.6% for TTMT (15% for M&HCV and 5% for LCV).
Tractor: Demand for Tractor has sustained on good rabi sowing and a preference for
farm mechanization. Both MM and ESC are operating at full capacity. Sales remain
skewed toward higher HP tractors on high demand from the Agriculture segment and a
low base. The commercial use of tractors is also picking up. Dealers are holding
inventory (10–30 days) depending on the model. We expect Tractor volumes to grow
17%/35% YoY for MM/ESC, led by high demand.
Jinesh Gandhi – Research Analyst
(Jinesh@MotilalOswal.com)
Vipul Agrawal – Research Analyst
(Vipul.Agrawal@MotilalOswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
 Motilal Oswal Financial Services
Automobiles
Valuation and view: Jan’21 saw sustained demand across segments (ex-2W). With
pent-up demand largely fulfilled, it would be critical for demand to sustain in 4QFY21
and beyond – considering expected price hikes as well as the opening up of public
transport in several parts of the country. Current valuations suggest recovery is likely
to sustain (our base case), leaving limited margin for safety for any negative surprises.
We prefer companies with: a) higher visibility in terms of demand recovery, b) a strong
competitive positioning, c) margin drivers, and d) balance sheet strength. MM is our
top OEM pick. Among the auto component stocks, we prefer ENDU and MSS.
Snapshot of volumes for Jan’20
YoY
Company Sales
Maruti Suzuki
Domestic
Export
Mahindra & Mahindra
UV (incl. pick-ups)
LCV & M&HCV
Verito
Three-Wheelers
Tractors
Tata Motors
HCV's
LCV's
CV's
Cars
UV's
Hero MotoCorp
Bajaj Auto
Two-Wheelers
Three-Wheelers
Ashok Leyland
CV (ex LCV)
LCV
TVS Motor
Eicher Motors
Royal Enfield
VECV
Escorts
Jan’21
1,66,676
1,57,533
9,143
68,303
36,884
711
0
3,662
27,046
61,260
13,878
22,882
36,760
15,000
9,500
5,02,000
4,11,117
3,71,245
39,873
14,878
8,529
6,349
2,72,772
69,237
5,495
8,185
Jan’20
1,54,123
1,44,499
9,624
75,662
43,393
1,016
0
8,137
23,116
47,862
12,068
21,792
33,860
9,775
4,227
5,01,622
3,94,473
3,32,342
62,131
11,850
7,754
4,096
2,34,920
63,520
5,544
6,063
MoM
YoY (%)
MoM
Dec’20
chg
(%) chg
8.1
1,60,226
4.0
9.0
1,50,288
4.8
-5.0
9,938
-8.0
-9.7
57,604
18.6
-15.0
31,781
16.1
-30.0
541
31.5
0.0
0
0.0
-55.0
2,865
27.8
17.0
22,417
20.6
28.0
56,426
8.6
15.0
11,906
16.6
5.0
20,963
9.2
8.6
32,869
11.8
53.5
14,493
3.5
124.7
9,064
4.8
0.1
4,47,335 12.2
4.2
3,72,532 10.4
11.7 3,38,584
9.6
-35.8
33,948
17.5
25.6
12,762
16.6
10.0
6,884
23.9
55.0
5,878
8.0
16.1 2,72,084
0.3
9.0
-0.9
35.0
68,995
4,892
7,733
0.4
12.3
5.8
FY21 YTD (%) chg
11,32,302
10,62,548
69,754
5,72,859
2,67,624
3,057
0
14,528
2,87,650
3,54,894
59,371
1,32,675
1,92,046
1,03,116
59,732
47,25,383
32,14,367
29,29,506
2,84,862
71,546
34,072
37,474
23,97,056
4,76,693
28,593
82,338
-15.0
-14.7
-20.0
-18.4
-27.3
-70.4
0.0
-74.9
8.2
-15.5
-45.8
-32.3
-37.1
66.2
14.2
-15.3
-20.0
-14.5
-51.8
-35.9
-50.9
-11
-16.3
-20.1
-32.9
14.4
FY21
estimate
14,82,563
13,94,990
87,573
7,20,031
3,44,206
5,205
0
31,871
3,38,749
4,83,978
92,038
1,80,277
2,72,315
1,33,289
78,373
58,98,258
40,21,271
36,55,580
3,65,691
1,09,276
58,757
50,519
30,27,784
6,17,149
40,436
1,03,222
Gr. (%)
-5.1
-4.5
-14.3
-7.4
-14.5
-53.8
0.0
-48.8
12.2
2.2
-26.0
-16.6
-20.1
84.5
29.6
-7.1
-12.9
-7.4
-45.2
-12.7
-25.2
8.3
-7.2
-11.3
-17.0
20.0
Residual
Residual
Monthly
Growth (%)
Run rate
52.1
54.4
19.0
93.5
121.0
124.7
0.0
306.7
41.3
140.7
118.0
134.5
127.5
196.2
128.4
51.3
35.0
39.3
6.0
176.6
168.8
192.8
58.5
41.2
94.6
48.7
1,75,131
1,66,221
8,910
73,586
38,291
1,074
0
8,672
25,549
64,542
16,333
23,801
40,135
15,087
9,321
5,86,438
4,03,452
3,63,037
40,415
18,865
12,342
6,523
3,15,364
70,228
5,921
10,442
27 January 2021
2
 Motilal Oswal Financial Services
Automobiles
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27 January 2021
3
 Motilal Oswal Financial Services
Automobiles
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Tribunal, Mumbai Bench.
27 January 2021
4