Auto Sector - Monthly Volume Round-up - Apr'22 - Steady Performance Improvement but at a Low Pace

Key Findings:

Sentiment Improved sequentially during auspicious festival of Navratra, supported by positivity in rural market due to rising exports of food grain amid Russia Ukraine tussle. Overall demand improved MoM but at low pace and it remained below pre Covid level across segments. Wholesale performance delivered across the categories was 5-10% higher than retail with inventory fill up.

While PV segment witnessed subdued performance due to chip shortage, CV segment witnessed the healthy performance on YoY basis (traditionally CVs decline on MoM basis in April). Rural recovery supported the performance of rural-centric vehicles like tractors and 2Ws in Apr'22. Volume performance was high on YoY basis due to low base (as Apr'21 was impacted by Covid-2 wave).

2W and tractors segment witnessed improvement on YoY basis, while PV segment witnessed subdued performance due to difficulty in semiconductor availability. Surprisingly Tractor volume delivered very strong YoY as well as MoM performance while, 3W segments delivered mixed performance with strong YoY growth on low base but declined on MoM basis.

Channel check suggests that overall sales performance started improving in Apr'22, backed by positivity during festival. We expect volume pressure to continue over the next 1-2 months, while it would pick up in 2QFY23 with beginning of festivals and likely healthy agri output at better pricing (Crop prices moved 10-20% higher than MSPs due to rising exports demand recently).

Key Highlights:

Indian automobile companies witnessed gradual improvement in sales performance sequentially, despite continued weakness in economy. Sector also got impacted by higher fuel prices, sharp increase in vehicle prices and lower business sentiment. It improved sequentially with positive rural sentiment, healthy crops, early harvesting due to excess heat and inventory built up. Urban has already recovered to greater extent in 4QFY22, boosting urban products like SUVs.

Our View

Though we expect the industry to record a subdued volume over the next 1-2 months, diminishing impact of Covid and rural recovery is expected to support retail demand in FY23. Recent global geopolitical issues amid Russia Ukraine war have negative impact on businesses environment, which creates negative demand sentiment for consumption. The key monitorable is how the war situation pans out in the coming days. We expect automobile industry to witness double digit growth in FY23, while we expect M&HCV and 3W segments to outperform with 30%+ volume growth in FY23. Nonetheless, long-term fundamentals continue to remain intact for automobile sector, in our view.

2W: BAL's sales de-grew by 20% YoY (up 5% MoM) to 3,10,774 units, while HMCL's sales grew by 12% YoY (down 7% MoM) to 4,18,622 units. TVSL's sales grew by 24% YoY (down 4% MoM) to 2,95,308 units.

PV & CV: M&M's auto volume grew by 25% YoY (down 17% MoM) to 45,640 units, while MSIL's volume de-grew by 6% YoY (down 12% MoM) to 1,50,661 units. AL's volume grew by 42% YoY (down 41% MoM) to 11,847 units and TTMT reported sales of 72,468 units (up 74% YoY and down 19% MoM).

Tractor: M&M's tractor volume grew by 49% YoY (up 38% MoM) to 40,939 units and Escorts' sales volume grew by 19% YoY (down 17% MoM) to 8,325 units.

Our Top Picks: TVS Motor, MSIL and M&M

Source : Equity Bulls

Keywords

AutoSector MonthlyReport SalesVolume April2022 RelianceSecurities