Auto Sector - Monthly Volume Round-up - Nov'22 - Mixed Performance with Strong PVs and CVs... but Subdued 2Ws

Key Findings:

Overall Auto sale delivered mixed performance within Auto segments, supported by strong urban sales but slower rural recovery. Moreover, success of new launches and ease on supply constraint benefitted sales during the month. However, 2Ws remained subdued despite improvement. Seasonally industry declines in double digit during post festival month due to demand moderation and inventory de-stocking.

While PV segment witnessed strong performance due to ease on chip shortage and success of new launches, CV segment also witnessed strong performance. However, slow rural recovery and higher inflation impacted the performance of rural-centric vehicles like 2Ws in Nov'22.

2W segment witnessed highly subdued performance with YoY as well as MoM decline. On the other hand, 3W segments recorded healthy double-digit growth.

Channel check suggests that overall sales pick up is slow due to subdued demand in rural markets and domestic inflation impacting consumption, except CV and 3W segments. We expect sales to remain under pressure in Dec'22 except PVs (due to healthy order book). It would see revival in 4QFY23.

Key Highlights:

Indian automobile companies witnessed gradual improvement in sales performance on YoY, while due to seasonality it recorded decline on MoM basis. Ease on semiconductor supply supported PV segment, while pick up in construction activities with new infra projects aided CV sales. High inflation and economic challenges impacted rural economy and 2W sales. Low base and normalised school & college activities fuelled Buses and 3W sales. Tractor sales performance was big surprise as it recorded decent YoY growth on a high base, despite slow rural recovery.

Our View

We expect the industry volume to see marginal improvement but would remain under pressure in near term. We expect it to plummet in Dec'22. Despite stronger 1H on a low base, ongoing global geopolitical issues and depreciating currency continue to keep pressure on economies and elevating inflation level across countries. This has been limiting industry wide recovery at the moment. However, softening commodity prices and lower fuel prices would support industry ahead on volumes and margins front. Industry recovery is much slower than expected, particularly for 2Ws, which we expect to continue pressure on 2Ws for next 1 quarter. We expect automobile industry to witness low double-digit growth in FY23, while we expect M&HCV segment to outperform with 40%+ 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 19% YoY (down 22% MoM) to 3,06,552 units, while HMCL's sales grew by 12% YoY (down 14% MoM) to 3,90,932 units. TVSL's sales grew by 2% YoY (down 23% MoM) to 2,77,123 units.

PV & CV: M&M's auto volume grew by 45% YoY (down 5% MoM) to 58,303 units, while MSIL's volume grew by 14% YoY (down 5% MoM) to 1,59,044 units. AL's volume grew by 39% YoY (down 2% MoM) to 14,561 units and TTMT reported sales of 75,478 units (up 21% YoY and down 4% MoM).

Tractor: M&M's tractor volume grew by 10% YoY (down 41% MoM) to 30,528 units and Escorts Kubota's sales volume grew by 12% YoY (down 45% MoM) to 7,960 units.

Our Top Picks: Apollo Tyre, CEAT and Escorts Kubota

Source : Equity Bulls

Keywords

AutoSector MonthlyVolume November2022 RelianceSecurities