Auto Sector - Monthly Volume Round-up - Feb 21 - Decent YoY Growth Continues

Key Findings:

- YoY growth continued across segments (except for 3Ws), while few segments grew on MoM basis as well

- PVs and Tractor volume witnessed double-digit growth, while 3W volume declined

- Overall wholesale volume were higher than the retail volume for most segments led by inventory restocking

Key Highlights:

Indian automobile companies reported decent YoY sales volume growth across segments in Feb'21 (barring 3W segment) due to gradual improvement in urban markets and continued positive traction in rural markets, channel refilling and higher dealer incentives.

In most segments, wholesale volume was higher than the retail volume. Inventory level at the end of Feb'21 across segments (except PVs and M&HCVs) rose by ~1 week due to channel refilling by few players.

PV segment is estimated to have grown by >20% YoY, while Tractor segment reported a strong >30% YoY volume growth in Feb'21 led by positive sentiment following a healthy agri output and favourable monsoon.

Within the CV segment, LCV sales volume witnessed a muted YoY performance with lower volume growth in Feb'21. On the other hand, M&HCV segment witnessed improvement due to volume traction in M&HCV cargoes, while bus segment continued to fall by 70-90% YoY in Feb'21. 3W segment was the worst performer with high double-digit YoY fall in sales volume.

Our View

Looking ahead, we expect positive volume traction to continue in Mar'21 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. However, supply constraint for semiconductors and container availability issue would remain as key challenge for the industry over the near-term. We expect the industry volume to record double-digit volume decline in FY21E barring tractor segment. In addition to ongoing positive momentum in tractor and PV segments, we expect strong rebound in M&HCV segment in coming months. We remain positive on automobile sector, while Ashok Leyland and Bharat Forge continue to remain our top picks.

2W: BAL's sales grew by 6% YoY (down 12% MoM) to 3,75,017 units, while HMCL's sales grew by 2% YoY (up 4% MoM) to 5,05,467 units. TVSL's sales grew by 18% YoY (down 3% MoM) to 2,97,747 units.

PV & CV: M&M's auto volume declined by 11% YoY (down 27% MoM) to 28,777 units and MSIL's volume grew by 12% YoY (up 2% MoM) to 1,64,469 units. AL's volume grew by 19% YoY (up 4% MoM) to 13,703 units, while TTMT reported sales of 61,365 units (up 51% YoY and 2% MoM).

Tractor: M&M's tractor volume grew by 25% YoY (down 19% MoM) to 28,146 units and Escorts' sales volume grew by 31% YoY (up 25% MoM) to 11,230 units.

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

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Source : Equity Bulls

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