Sector Update | 28 November 2019
Demand looking up for PVs/2Ws
CV decline arrested MoM | Tractors fails to live up to expectations
Our interactions with leading PV/2W/CV channel partners indicate positive demand trends
in 2Ws/PVs (v/s pre-festive period in 2019 and post-festive in 2018), stability in CVs but
pressure in Tractors. However, compared to Nov’18, wholesales are likely to decline across
OEMs (except RE) due to the timing difference (Diwali in Nov’18). Sentiment has improved
compared to the pre-festival period (before Oct-19), despite an MoM reduction in
discounts/offers. Wholesale volumes are estimated to decline ~9%/~12%/~10% YoY in
2Ws/PVs/Tractors. In CVs, volumes are expected to decline by ~11% in LCV and even higher
by ~47% in M&HCVs. Barring MHCVs, inventory correction has led to comfortable
inventory below 30 days across segments.
2Ws: Post-festive retails are likely to grow marginally YoY. Demand was positive in
rural (particularly motorcycles in entry/executive segment) due to strong monsoon
and harvesting season, but declined in urban areas. Majority of demand is driven by
the ongoing marriage season. Strong festival sales resulted in inventory of <30 days.
We expect wholesales to decline by ~4% for BJAUT (~13% decline for domestic 2W)
and ~9% YoY for TVSL. HMCL wholesales are estimated to decline ~12%, while RE
dispatches are expected to grow ~4% YoY to 68.5k units.
PVs: Post-festive indicators have been encouraging on inquiries, conversion and retails.
Discounts have reduced MoM but are higher YoY and at similar levels as Sep’19.
Volumes are expected to decline ~9% YoY for MSIL and ~14% YoY for M&M’s UV
(including pick-ups). TTMT’s PV volumes are estimated to come in ~38% lower YoY.
CVs: High discounts and offers failed to revive sales, though retail volumes appear to
have stabilized MoM. LCVs continue to do better than M&HCVs. Continued production
cuts by OEMs led to manageable inventory at 30-35 days. We expect CV wholesales to
decline by ~31% for TTMT (-49% for M&HCV) and ~33% YoY for AL (-51% for M&HCVs).
Tractors: Contrary to expectations, tractor demand failed to catch up post the weaker
Diwali season. This was also in contradiction with feedback on stronger rural demand
in other segment. We expect tractor volumes to decline by ~10% YoY for M&M and
~9% YoY for Escorts.
Trends in the demand environment for 2Ws and PVs are encouraging, particularly in
the run up to BS6 transition. This was critical for justifying the outperformance of the
auto sector. For the next 12-18 months, our preference remains for PVs over CVs/2Ws
as the segment is likely to (a) be least impacted by BS6 transition and (b) face less risk
of EVs and competition, in turn reflecting better earnings growth. Our top picks in
autos are MSIL, TTMT and MSS among large-caps, and AL and ENDU among mid-caps.
Mr. Rajiv Bajaj, MD Bajaj Auto
“In the last quarter of this
financial year, from Jan-March,
there will be two factors at play,
largely. One is the base effect of
last year will catch up. That's
positive - it will make it look like
growth is back. The second is
BSVI is going to come. Now,
where will the penny fall
ultimately? I suspect it will be
more negative than positive”
Jinesh Gandhi - Research analyst
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Aanshul Agarawal - Research analyst
(Aanshul.Agarawal@MotilalOswal.com); +91 22 7193 4337
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.
28 November 2019