Auto Sector - Monthly Update - YoY Growth Continuous albeit at Lower Pace - Reliance Securities

Key Findings:

- Most segments witnessed YoY growth in domestic sales but declined on MoM basis due to seasonality
- 2Ws, PVs and Tractor volume witnessed double-digit growth, While LCVs declined
- Overall wholesale volume were broadly in line with retail volume for most segments, despite post festival lean period for Automobiles

Key Highlights:

- Indian automobile companies reported YoY sales volume growth across segments in Dec'20 (barring LCV and 3W segments) due to demand recovery in urban markets and continued healthy demand in rural markets, channel refilling post-festivities and higher dealer incentives.

- In most segments, wholesale volume was broadly in line with the retail volume. Inventory level at the end of Dec'20 across segment rose by 0-1 weeks due to channel refilling by few players.

- PV segment is estimated to have grown by 18% YoY, while Tractor segment reported a strong >40% YoY volume growth in Dec'20 led by positive sentiment following a healthy Kharif output & strong Rabi sowing and favourable monsoon.

- Within the CV segment, LCV sales volume - which has been witnessing remarkable improvement during the past few months - witnessed YoY decline in Dec'20. On the other hand, M&HCV segment witnessed improvement due to volume traction in M&HCV cargoes, while M&HCV bus segment continued to fall by 70-90% YoY in Dec'20. 3W segment was the worst performer with >30% YoY fall in sales volume.

Our View

Looking ahead, we expect positive volume traction to continue in 4QFY21E as well due to improved economic activities across the country. We believe increasing positive sentiment, improved footfalls and higher enquiry levels coupled with steadily opening of the urban markets would help the automobile volume, going forward. Moreover, recent corona vaccination drive would lead to healthy volume across segments. We expect the industry volume to record double-digit volume decline in FY21E barring tractor segment. In addition to ongoing positive momentum in tractor, 2W and PV segments, we expect strong rebound in M&HCV segment in 4QFY21E. We remain positive on automobile sector and Ashok Leyland, Bharat Forge and M&M continue to remain our top picks.

2W: BAL's sales grew by 11% YoY (down 12% MoM) to 3,72,532 units, while HMCL's sales grew by 5% YoY (down 24% MoM) to 4,47,335 units.TVSL's sales grew by 18% YoY (down 16% MoM) to 2,72,084 units.

PV & CV: M&M's auto volume declined by 10% YoY (down 18% MoM) to 35,187 units and MSIL's volume grew by 20% YoY (up 5% MoM) to 1,60,226 units. AL's volume grew by 14% YoY (up 20% MoM) to 12,762 units, while TTMT reported sales of 56,414 units (up 20% YoY and 14% MoM).

Tractor: M&M's tractor volume grew by 25% YoY (down 32% MoM) to 22,417 units and Escorts' sales volume grew by 88% YoY (down 24% MoM) to 7,733 units.

Our Top Picks: Ashok Leyland, Bharat Forge and M&M

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Source : Equity Bulls

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