Sector Update | 1 March 2019
Automobiles
Wholesales in line across segments
Outperformance by HMCL, but a big miss by RE
Wholesales in the month of Feb-19 were in line with our estimates across segments. PV
volumes remained weak but appear to be recovering led by new product launches and low
channel inventory. CV volumes declined 4.9% YoY, as growth in LCVs (+3.3% YoY) was
offset by lower M&HCV volumes (-11.1% YoY). Tractors volume growth slowed down to
3.3% YoY (-7% MoM) owing to a high base and muted farm sentiment in key markets. In
this note, we provide key highlights of the volume trends (including exports) in Feb-19.
“The tractor industry has
remained subdued in
February. However, it is
expected that positive
sentiment associated with
the recently executed direct
beneficiary transfers to
marginal farmers and other
pro-rural initiatives by the
government, will help
create momentum for
tractor sales in the near
term.”
Rajesh Jejurikar, President,
Farm Equipment Sector,
M&M
PVs – new products and low inventory drive volumes:
PV volumes were weak for the
eighth consecutive month in Feb’19, but nevertheless showed signs of a recovery after
being hit by negative sentiment due to higher fuel prices, an increase in
financing/insurance cost, etc. We note that new product launch in UVs helped MM (PV)
wholesales grow 16.6% YoY, while MSIL’s dispatches declined 0.8% YoY.
CVs – drag in volumes led by TTMT:
CVs wholesales were in line, with AL and TTMT’s
volumes trending broadly in line with our estimates. M&HCV volumes declined 11.1%
YoY (-1.6% MoM), while LCV volumes grew 3.3% YoY (+7.2% MoM). However, for YTD
FY19, both the segment grew in the range of 16-21% YoY. TTMT attributed lower sales
primarily to subdued sentiment, high interest rates, the lagged effect of the
implementation of revised axle load norms, slowing industrial output and declining IIP
growth index.
Tractors – ESC continues outperforming MM:
Tractors volume declined 3% YoY (-7%
MoM), led by a high base and muted farm sentiment in key markets. ESC’s volume grew
12.7% YoY (+20.8% MoM), continuing to outperform the MM tractor segment, where
volumes declined 8.1% YoY (-14.6% MoM).
Positive surprise (Var %)
Escorts (+4.2%)
HMCL (+12.6%)
In-line (Var %)
Maruti Suzuki (0.0%)
M&M (+1.1%)
Ashok Leyland (-1.1%)
Tata Motors (-0.6%)
TVSL (+0.6%)
Negative surprise (Var %)
Royal Enfield (-15.1%)
Bajaj Auto (-3.7%)
Valuation and view:
We prefer PVs over CVs/2Ws due to their stronger volume growth and a
stable competitive environment. Our top picks in autos are MSIL and MSS among large caps,
and ENDU and EXID among midcaps.
Exhibit 1: Snapshot of volumes for February-19 (incl Exports)
Company Sales
Feb-19
Feb-18
YoY (%)
chg
Jan-19
MoM (%)
chg
FY19 YTD
FY18 YTD
(%) chg
11.8
3.2
11.5
6.4
29.0
16.0
21.2
18.4
10.0
2W
1,130,381
1,113,483
1.5
1,117,170
1.2
13,334,685
11,926,060
Cars
120,579
127,551
-5.5
123,931
-2.7
1,406,822
1,362,648
Uvs + MPVs
92,971
83,148
11.8
89,402
4.0
936,684
840,352
Total PVs
213,550
210,699
1.4
213,333
0.1
2,343,506
2,203,000
3Ws
84,498
75,238
12.3
76,046
11.1
914,563
708,861
M&HCVs
37,525
42,209
-11.1
38,141
-1.6
392,102
338,110
LCVs
32,784
31,736
3.3
30,576
7.2
348,356
287,372
Total CVs
70,309
73,945
-4.9
68,717
2.3
740,458
625,482
Tractors
26,218
27,120
-3.3
28,203
-7.0
395,255
359,473
*2W: BJAUT,HMCL, TVSL,EIM; PVs: MSIL, MM & TTMT; 3Ws: BJAUT, TVSL & MM; CVs: TTMT, AL, MM, EIM; Tractors: MM, ESC
Jinesh Gandhi - Research analyst
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Research analyst: Deep Shah
(Deep.S@MotilalOswal.com); +91 22 61291533/
Suneeta Kamath
(Suneeta.Kamath@MotilalOswal.com); +91 22 61291534
1 March 2019
Investors are advised to refer through important disclosures made at the last page of the Research Report.
1
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.