Auto Sector - Monthly Volume Round-up - Feb'22 - Subdued Performance across Segments Continues...

Key Findings:

• Demand weakness continued across segments, though PVs improved sequentially, while CVs performed better within peer group. Much slower recovery in rural led to highly subdued sales performance for most companies. Slower rural recovery is also visible in muted performance of rural-centric vehicles like tractors and 2Ws in Feb'22. Volume performance was mixed on YoY and MoM basis.
• 2W segment witnessed a highly subdued performance, while PV segment saw a better performance with ease in semiconductor availability though supply shortage continued. CV delivered better YoY as well as MoM performance. Tractor volume witnessed a sharp double-digit YoY decline. However, 3W segments delivered decent YoY growth albeit on a lower base.
• Overall wholesale volume was more or less in line with weaker retail volume for most segments except PVs.
• Channel check suggests that overall sales performance was weak across segments in Feb'22. We expect volume pressure to continue over the next 1-2 months and then volume to improve in FY23 with a healthy rabi crop, which may change the rural sentiment.

ey Highlights:

Indian automobile companies reported a subdued sales performance. It witnessed mixed performance on YoY as well as MoM basis due to weak retail demand in Feb'22. Sector also got impacted by higher fuel prices, sharp increase in vehicle prices and lower business sentiment.

Retail volume was higher than the wholesale volume in PVs due to production constraints. In case of 2W, CV and 3W segments, no major change in inventory is observed.

Our View

Though a higher vaccination coverage and likely rural recovery is expected to support retail demand in FY23, we expect the industry to record a subdued volume over the next 1-2 months, as recovery of rural economy is impacted by an uneven monsoon, slow revival and higher inflation. Moreover, recent global geopolitical issues amid Russia-Ukraine war has negative impact on business environment, which creates negative demand sentiment for consumption. Though we believe an increasing vaccination coverage coupled with likely strong agri output in the rabi season would support auto sales in 1QFY23, the key monitorable is how the war situation pans out in the coming days. We expect only M&HCV and 3W segments to witness a double-digit volume growth in FY22E. Nonetheless, long-term fundamentals continue to remain intact for automobile sector, in our view.

2W: BAL's sales de-grew by 16% YoY (down 13% MoM) to 3,16,020 units, while HMCL's sales de-grew by 29% YoY and 6% MoM to 3,58,254 units. TVSL's sales de-grew by 5% YoY (up 6% MoM) to 2,81,714 units.

PV & CV: M&M's auto volume grew by 89% YoY and 16% MoM to 54,455 units, while MSIL's volume de-grew marginally by 0.3% YoY (up 6% MoM) to 1,64,056 units. AL's volume grew by 7% YoY and 5% MoM to 14,657 units and TTMT reported sales of 77,733 units (up 27% YoY and up 2% MoM).

Tractor: M&M's tractor volume de-grew by 27% YoY (down 10% MoM) to 20,437 units and Escorts' sales volume de-grew by 46% YoY (up 7% MoM) to 6,114 units.

Our Top Picks: Bajaj Auto and TVS Motor

Link to the report

Source : Equity Bulls

Keywords

AutoSector MonthlyUpdate February2022 SalesVolume RelianceSecurities