Auto sales data for May is likely to be good for makers of personal vehicles (PVs) and two-wheelers, but it may be bad for makers of commercial vehicles (CVs). This is according to analysts, who see Maruti Suzuki leading the growth in the PV segment and Ashok Leyland logging the best growth in the medium and heavy commercial vehicle segment.
Two-wheeler makers may see double-digit growth in sales because of the wedding season, the need for replacements, and the low base. Thanks to new launches and better sources, the amount of PV may also grow by more than 10%. Anand Rathi said that early buying in the last quarter is likely to have hurt sales of CVs. He also said that tractor sales may have gone down a little as the high base comes up. This brokerage’s top picks are Tata Motors, Eicher Motors, and Hero MotoCorp.
Nomura India likes Bajaj Auto stocks for two-wheelers and M&M, Tata Motors, and Ashok Leyland stocks for four-wheelers because they are able to gain market share.
For May, it was expected that the PV industry wholesaled 3,31,000 units, which was a 12 percent increase from the previous year. Nomura India said that because store sales were lower, there was an increase of 15,000 items in stock.
We continue to forecast that the PV industry would increase by 6% YoY in FY24F. On a low start (volumes on May 23 are still 18% lower than their last peak in May 2018), we expect 22% YoY growth in 2Ws. We think that MHCV wholesale output will go up by 6% year over year. In May-23, we expect the number of trucks to go down by 9% YoY. We plan to have flat volumes for FY24F, according to Nomura India.
Prabhudas Lilladher said in a note that the PV segment’s current inventory levels are 30-35 days, which is doable. Though leading OEMs have bigger inventories (40–45 days), inventory levels in the two-wheeler market are generally under control. It said that the business as a whole has enough inventory to last about 20 days. Maruti Suzuki, Tata Motors, TCS Motor, Hero MotoCorp, M&M, Eicher Motors, and Ashok Leyland all have ‘Buy’ rates from this brokerage.
The retail sector is predicted to rise by 3–5% YoY, driven by solid demand in urban areas and a low base from the previous year, as reported by our conversations with prominent channel partners. But even though it’s wedding season, country demand has not yet come back in a big way. Due to the pre-buying effect before the OBD-2 switch in March and the effect of seasonality, MHCV retail sales are expected to drop by 4-6% year over year. On the other hand, retail sales are projected to grow by the mid-single digits sequentially, which is good news for bus sales. Overall, wholesales for PV/3Ws are expected to go up 5.5%/32% YoY in May, while wholesales for 2W/CV/tractors are expected to go down 1%/18%/4% YoY. This is what Motilal Oswal said.
This brokerage likes CVs over other segments because demand will be strong over the next few quarters and competition will be stable. Motilal Oswal likes to invest in companies whose demand recovery is clearer, whose competitive situation is strong, whose margin drivers are encouraging, and which have a strong balance sheet. It likes Tata Motors the best.
Emkay Global thinks that the current recovery will help the two-wheeler industry grow, with the entry/rural segment adding to the premium and urban categories as replacement demand goes up.
It thinks that Bajaj Auto’s domestic sales will rise by 72% from a low start. It thinks that sales will go up 25% for TVS Motor, 30% for Royal Enfield (RE) by Eicher Motors, and 5% for Hero MoroCorp.
We observe that the market leader Hero MotoCorp has increased its retail volume by 11% YoY on an MTD basis (compared to a 4% sector growth), following a combined 12% growth in March and April. Overall volume is projected to be 75,000 units for RE, which is up 18% from last year, 2,85,000 units for Bajaj Auto, which is up 14% from last year, 3,05,000 units for TVS Motor, which is up 6% from last year, and 500,000 units for HMCL, which is up 3% from last year.
The brokerage said that OEM commentary has turned positive, with Bajaj Auto predicting that the industry will grow by 6–8% in FY24 (including a recovery in the 100cc market) and HMCL reiterating its prediction that the industry’s income will grow by double digits this year.
Emkay Global thinks that Maruti Suzuki will do better in PVs, even though shortages of semiconductors will continue to hurt production. The research firm thinks that Maruti Suzuki’s overall volume will grow by 10% from one year to the next (1,78,000 units). M&M’s domestic sales grew by 30% year over year (from a low base of 35,000 units), while Tata Motors’ sales are expected to grow by 4% year over year (45,000 units).
Maruti Suzuki has said that it thinks the drop in production will continue in the current quarter, but that things should get better after July. Also, M&M has said that a shortage of semiconductors could slow down production by 10–12%.
