The month of August was a mixed bag again for the auto companies. While passenger vehicles (PVs) witnessed stronger sales in the previous month, especially the SUV segment; commercial vehicles (CVs) again have posted a subdued performance post improvement in previous months, observed a report by brokerage house LKP Securities. On the other hand, it added that two-wheelers (2Ws) were slightly weak domestically, but exports improved sequentially and YoY.
Going forward, the brokerage believes that the impact of currently prevailing El Nino needs to be seen on the rural-centric segments like 2Ws and tractors. Further, the impact of BS VI phase-2 implementation, OBD-2 ((On Board Diagnostic)) norms, and high base are resulting in this weakness, it noted.
As per the brokerage, 2Ws posted weak domestic performance as sales decline for Bajaj Auto in the domestic markets came in at 31 percent YoY, however, sequentially they grew by 13.3 percent. Meanwhile, TVS posted a 5-6 percent growth in the month, both on YoY and MoM basis. It further stated that 2W exports have shown some signs of improvement sequentially as well as yoy, which can be an important parameter to trace going forward, mentioned the brokerage.
But, on the PV front, all the companies have posted strong growth led by the SUV growth story and on the CV side of the sector, we witnessed Tata Motors posting good growth, while Ashok Leyland posted deep negative falls both YoY and MoM, highlighted the brokerage.
Among the PV OEMs (original equipment manufacturers), Maruti Suzuki (MSIL) has posted a slightly strong number at 1.89 lakhs. On a YoY basis, the total sales growth in the domestic markets came in at 15.4 percent while the exports grew by 14.6 percent. The domestic growth came after the successful launch of Invicto, Fronx and Jimny 5-door SUV in the last few months. The continued success of the twin launches of the new Granda Vitarra and Brezza in the earlier months initiated the growth in the SUV segment earlier. Also, the easing up of chip shortage led to catering of the pent-up demand. Small cars in August de-grew by 44.9 percent YoY and were up by 27.3 percent MoM. The compact car segment was up 1.2 percent YoY and 8 percent MoM. The UV segment grew 118 percent YoY and dipped by 5.3 percent sequentially.
TaMo’s PV segment saw a 3 percent YoY and a 3.6 percent dip sequentially. M&M’s SUV segment, on the other hand, jumped by 26.3 percent YoY and 2.9 percent MoM. CV division was up 9.9 percent YoY and 13 percent MoM despite the impact of BS VI Phase-2 implementation and OBD-2 norms. M&M’s tractor business in the domestic markets rose by 2.5 percent YoY and dropped by 14.6 percent MoM. However, Escorts Kubota’s domestic tractor sales dropped 2.1 percent YoY and grew by 0.8 percent mom. With below-normal monsoon to date due to poor August rains, tractor sales may be impacted negatively in FY 24E.
In the 2W segment, Bajaj reported a 31 percent YoY fall and 13.3 percent MoM gain for its domestic motorcycles while in exports, motorcycles improved by growing at 2 percent YoY and de-grew by 2.1 percent MoM. This sequential growth is a positive sign indicating exports may have bottomed out. However, we need to follow this trend closely in the ensuing months, said the brokerage. Their 3W segment moved up by 22.9 percent YoY and 11 percent MoM domestically on a good pick-up in the CNG portfolio and e-3Ws. Exports 3Ws however disappointed by posting a de-growth of 47 percent YoY and 10.2 percent MoM.
TVS 2W segment reported 5.3 percent YoY growth, of which, the motorcycle segment de-grew by 2.6 percent YoY and fell by 0.6 percent MoM, while scooters grew by 16.9 percent YoY. The sales seemed to have grown despite the impact of the FAME-2 subsidy. The mopeds segment of TVS remained flat both MoM and YoY. 3Ws fell 24.7 percent YoY and remained flattish MoM.
The brokerage remains positive on the sector. However, its choice is in the following order – PVs, 2Ws and CVs. Stocks specifically, within the 2Ws, it likes Bajaj Auto as “we expect the export growth seen in August to continue hereon as things are easing out in Africa. Also, the EV strength gained from Chetak and the upcoming launch of e-3W can be additional positives.” Domestically on the motorcycle side, it expects new launches to assist in posting decent numbers. TVS, too, looks promising with its dominance in EV scooters and solid performance by its star performers like NTorq, Jupiter, Apache, Raider, and the recently launched premium bike Ronnin, it said.
On the PV side, it prefers M&M because of its strength in the proliferating SUV segment, prudent capital allocation, and a robust growth strategy in UVs, EVs, and CVs. It also likes MSIL on the PV side because of its wide portfolio of vehicles and inroads into the SUV industry. It has also picked Ashok Leyland within CVs as it has a diversified revenue base deriving from LCVs, defense, 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, it suggested.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.