Sector Update | 27 March 2024
@
Automobiles
Our interactions with leading channel partners indicate that there is a sustained
recovery in demand for 2Ws. There was a challenging period lasting a week just
before Holi, which affected retail growth. Additionally, Mar’23 included other
festivals such as Navratras and some regional celebrations (like Gudi Padwa in
Maharashtra), resulting in a high base. Despite this, we expect the 2W segment
to post a retail growth of 10-12% YoY for the month. In the PV segment, retail
growth is expected to be 3-5% YoY, driven by stable demand in UVs and CNG
variants. MHCVs are expected to decline 5-7% YoY, while LCVs are expected to
remain flat. Tractors are expected to witness a retail decline of 7-9% YoY, with
commercial tractor retail demand declining 20-23% YoY. In Mar’24, we estimate
a 12%/16%/18% YoY growth in dispatches for 2Ws/PVs/3Ws. CVs/tractors are
expected to decline by 7%/18% YoY.
2Ws:
Retail sales have remained stable in March and are likely to grow 10-12%
YoY. This growth is uniformly spread across regions. A 2W dealer in Maharashtra
pointed out that Gudi Padwa (significant for auto retailers) occurred in March
last year. This year, it falls in April, resulting in flat retail figures for March.
Nonetheless, there are signs of pre-bookings for the festival next month.
HMCL’s
Xtreme 125R feedback:
Dealers have started receiving dispatches of Xtreme
125R, but the allocation is just 20% of the actual bookings at some dealerships.
The higher fuel efficiency of Xtreme 125R continues to provide an advantage
over its rivals. Initial bookings show no material cannibalization with HMCL’s
other 125cc models. Dealers who have bookings for the bike are quoting a
waiting period of one month. Although the initial feedback for the model is
positive, it remains to be seen where the sales stabilize in the long run. Dealers
have no clarity on the dispatches of
HMCL Mavrick 440
from the company, and
hence, are unable to quote a waiting period to customers. HMCL’s HF Delux is
currently offered with a discount of INR3,100 (INR2,600 in the western region),
while TVSL’s Radeon has a discount ranging from INR2-3k depending on the
region. Inventory levels stand at 40-45 days for HMCL and 25-30 days for
TVSL/BJAUT/HMSI. EVs are experiencing a pre-buy effect in March as subsidies
for major OEM models would be slashed to a flat INR10k/unit from April
onwards. We expect dispatches for HMCL/BJAUT/TVSL/RE to grow
5%/15%/23%/7% YoY over last year.
PVs:
Mar’24 retails are expected to grow 3-5% YoY, driven by healthy demand in
the UV segment. However, there has been a slowdown in inquiries and bookings
due to state elections and a mismatch in festivals. Entry-level demand continues
to remain under stress for MSIL and this is evident from the increase in
discounts, which are higher by 10-20% YoY. Specifically, discounts for MSIL’s
Grand Vitara have risen 16% on a MoM basis, reaching around INR87k/60k for
strong hybrid/mild hybrid variants. There are no discounts on MSIL’s Brezza and
TTMT’s Nexon. CNG variants of MSIL’s portfolio command lower discounts
(~25% less) vis-à-vis petrol variants; Ertiga CNG continues to command a waiting
period. Most of the TTMT dealers have reported that automatic CNG variants of
2W/PV retail growth to be led by premiumization
Tractor/CV retails to decline, due to festive mismatch and seasonality
“Going forward, given the
demographics of our
country, 65% of the
people being below 35
years of age, first time
buying very high still, the
public transport not so
developed, ownership of
transportation will be
there and I think we are
not at that income level
where people can straight
away go to the very large
cars. So, small cars will see
a rebound and
calculations show that it
will probably be sometime
in the second half of
2026.”
Mr. Shashank
Srivastava,
ED, MSIL
Aniket Mhatre – Research Analyst
(Aniket.Mhatre@motilaloswal.com)
Research Analyst: Amber Shukla
(Amber.Shukla@MotilalOswal.com) |
Aniket Desai
(Aniket.Desai@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.