Automobile Sector - Monthly Quick View - Nov'21 - Weak Demand and Post Festival Inventory Correction Impact Performance

As per the Society of Indian Automobile Manufacturers (SIAM), domestic auto sales volume (excluding CVs) de-grew by 32% YoY (down 28% MoM) to 12,88,759 units in Nov'21. Notably, various segments of the automobile industry witnessed a subdued YoY performance, with PV & 2W seeing the highest decline due to semiconductor supply issues and weak rural demand. Moreover, post festival inventory correction also pulled down wholesale dispatches across segments. Few segments reported growth on a lower base, while some markets appeared to witness a subdued performance, particularly rural market, due to slower recovery. Overall, the retail sales volume this time is assumed to be higher due to festival season, while the inventory level of most segments declined.

PV Segment: Overall, PV volume de-grew by 19% YoY and 5% MoM to 2,15,626 units. Its UV sales grew by 2% YoY (down 6% MoM), led by a higher production of new models by key OEMs. While MPV volume de-grew by 16% YoY and 8% MoM, PC sales decreased by 33% YoY and 3% MoM in Nov'21. Semiconductor issue impacted both YoY and MoM production. Therefore, waiting period for most products increased by ~2 weeks.

Scooter & Motorcycle Segment: Scooter sales de-grew by 39% YoY (down 34% MoM), while motorcycle sales fell by 32% YoY (down 31% MoM). Overall, domestic 2W volume de-grew by 34% YoY (down 32% MoM). Moped sales de-grew by 40% YoY (down 23% MoM). Further, 2W production was 3% lower than the sales in Nov'21. Overall, two-wheeler sales were impacted due to the weaker rural demand, amid an adverse monsoon.

3W Segment: Domestic 3W sales decreased by 7% YoY (down 29% MoM) to 22,471 units on a very low base. 3W passenger carriers' sales volume grew by 14% YoY (down 29% MoM), while 3W goods carriers' sales volume de-grew by 36% YoY (down 31% MoM) in Nov'21.

CV Segment: SIAM has stopped reporting the monthly CV volume performance since the beginning of FY21 due to unavailability of monthly CV volume data of select OEMs, and hence reports a quarterly volume performance. Thus, we analyze the data on a quarterly basis.

Exports: Overall, exports grew by 11% YoY (down 3% MoM) to 4,43,649 units. PV exports grew by 16% YoY (up 12% MoM), while 3W exports increased by 14% YoY (down 1% MoM). Motorcycle exports grew by 9% YoY (down 1% MoM) in Nov'21. While container availability and geopolitical issues in few regions impacted exports sales, it is expected to improve in the coming months and report a double-digit growth in FY22E.

Inventory: In the PV segment, inventory grew at the company level, as production was 3% higher than the sales volume. In the 2W segment, inventory decreased at the company level, as production was 3% lower than the sales volume.

Our View: Considering a gradual recovery in the COVID scenario, we expect retail demand across segments to witness some recovery going forward albeit the pace of recovery would be somewhat slow. Festive demand in past 2 months remained sluggish across segments. We expect the impact of a slower recovery on auto makers' profitability in 3QFY22 to continue, due to the higher commodity cost and lag effect of passing on the same to end customers. However, we believe with the increasing vaccination coverage and government's various initiatives to break the COVID chain, the situation would improve towards FY22-end. Moreover, semiconductors supply constraints and container availability issues are expected to impact sales and production in the near term, which we believe would get resolved in 4QFY22. We expect the 3Ws and M&HCV segment to witness a strong double-digit volume growth in FY22E. We believe the long-term fundamentals continue to remain intact for the automobile sector. As we prefer auto companies with both a stronger global and CV presence at this juncture, Ashok Leyland and Bharat Forge continue to remain as our top picks.

Link to the report

Source : Equity Bulls

Keywords

AutomobileSector RelianceSecurities November2021