April Auto Sales: PVs see solid growth while 2Ws, CVs fall; which stocks should you buy now?

The month of April was a mixed bag for the auto companies. While growth momentum in passenger vehicles (PVs) continued, commercial vehicles (CVs) saw a sharp fall. On a year-on year (YoY) basis, 2-wheelers (2Ws) have also shown weak performance, except Bajaj Auto, after a few months of positive domestic performance. Meanwhile, tractors have also witnessed a double-digit fall in the previous month.

Segments:

PV growth momentum continues YoY: The domestic PV industry volumes grew by 15 percent YoY but were flat on an MoM basis. M&M domestic sales outperformed domestic industry sales volume by growing at a robust 54 percent followed by Maruti, Hyundai, and Tata which were up 10-13 percent each YoY, a report by Axis Securities informed. The twin launches of the new Granda Vitarra and Brezza in the earlier months helped Maruti sales in April. Also, the easing up of the chip shortage led to pent-up demand. Amongst unlisted, players such as MG, Kia, and Nissan witnessed 127 percent, 22 percent, and 21 percent YoY growth in volumes while Toyota witnessed a 6 percent decline on account of scheduled annual production maintenance, added the report.

CV sales decline: As per the Axis report, CV domestic sales declined MoM due to higher dispatches in March 2023. On a YoY basis, the fall in sales was led by Tata Motors (down 28 percent YoY, 52 percent MoM) while, Ashok Leyland, and M&M (LCV) domestic sales were up 10 percent and 16 percent YoY. However, on an MoM basis, total sales of Ashok Leyland fell 45 percent while M&M's were down 14 percent. Exports were also impacted. AL exports fell 7 percent YoY in April while Tata Motors stood marginally up by 2 percent YoY, added Axis.

Two wheelers: In the 2W segment, Bajaj reported an improvement of 95 percent YoY and a 19.4 percent MoM rise for its domestic motorcycles while exports de-grew 43.7 percent YoY and grew 12.1 percent MoM. TVS, on the other hand, reported 5.3 percent YoY (-4.2 percent MoM) growth in its 2-wheeler segment.

Tractor sales remained weak: M&M and Escorts domestic volumes declined 10 percent and 6 percent YoY, respectively. Demand momentum could be impacted by the unseasonal rainfall and crop damage in certain regions, said Axis in its report.

Outlook

Brokerage house LKP Securities noted that a softer April was seen for 2Ws, MHCVs and tractors while PVs witnessed a faster easing of the chip shortage issue in April, which the brokerage expects to continue going forward too. The brokerage also sees 2Ws gaining strength going ahead on a low base of last year, marriage season and EV launches, however, unseasonal rainfall and hailstorms could harm the Rabi crop thus jeopardising rural income, it warned, adding that the impact of expected El Nino needs to be seen on the rural centric segments. Meanwhile, for CVs, the brokerage sees them witnessing a temporary dip on the back of BS VI phase-2 implementation, while underlying strength would keep them going strong.

Tractor industry growth needs to be monitored as well on expected El Nino setting up in the coming monsoon, it added.

Overall, LKP remains positive on the sector. However, its choice is in the following order – PVs, CVs and 2Ws. Stocks specifically, within the 2Ws, it likes Bajaj Auto as it expects a bounce-back of exports 3-4 months down the line as the dollar scenario may improve in Africa. Also, the EV strength gaining from Chetak and the upcoming launch of e-3W can be additional positives, it added.

TVS, too, looks good with its dominance in EV scooters and solid performance by its new launches, noted LKP. While on the PV side, the brokerage likes M&M because of its thrust on rural markets through its leadership in the tractors business, prudent capital allocation and a robust growth strategy in UVs, EVs and CVs. It also likes Maruti on the PV side.

Meanwhile, for CVs, it prefers Ashok Leyland as it has a diversified revenue base deriving from LCVs, defence, MHCVs, exports and spares.

Every dip in the stocks mentioned above shall provide good opportunities for investors to enter into them from a medium to long-term perspective, the brokerage advised.

On the other hand, Axis Securities pointed out that the budget's thrust on infrastructure development bodes well for the CV industry. However, increased costs due to regulatory changes, high interest rates, and rising fuel costs may act as headwinds, it said.

Axis expects PV sales volumes to sustain in FY24, led by new vehicle launches, especially in the SUV category. “However, we expect the growth rate to moderate in FY24 (on the high base of FY23). The impact of the OBD phase II and the risk of adverse weather conditions which may impact the monsoon will be key watch points for the expected recovery in the 2W segment, it noted. Further, tractor volumes may see marginal growth because of FY23's high base,” added Axis.

It remains selective for OEMs under its coverage and prefers TVS and Eicher Motors in the 2W segment, Maruti in the PV segment, and Ashok Leyland in the CV space.