Automobiles & Auto Components share price target

Domestic 2W retails in Jun’23 (1.3mn units) were up ~7% YoY though down 12% MoM, post a strong May’23, as culmination of marriage season, decline in e-2W subsidy impacted overall retails. e-2W retails declined to ~45k units in June vs. ~105k units in May as pre-buying inflated numbers last month on account of price hikes driven by partial subsidy removal.

Retail sales for the automobile industry as a whole rose 10.1% YoY in May 2023 to 20.2 lakh units. Two-wheeler retails sales went up 9.3% YoY to 14.9 lakh units, while car retail sales rose 4.3% YoY to around 3 lakh units.

All segments of the industry observed year-on-year gains during this period.

Key Monitorables: Rural Recovery, Pick up in Exports, and Price Realizations Top Picks from the Sector: TVS motors in the 2W segment, Maruti in the PV segment, and Ashok Leyland in the CV segment, Mahindra CIE Automotive Ltd in the Ancillary space.

Post outperforming benchmark Nifty 50 by ~10% in the past six months, India auto index (Nifty Auto), we believe, has limited upside triggers left from a 6 month perspective. We expect volume growth moderation across PVs, CVs, 2Ws and tractors in FY24 along with benefits of reduction in raw material basket cost (RMB) being fully priced in.

Automobile wholesales of listed companies rose 22.1% YoY to 14.1 lakh units in May, while exports fell 26.9% YoY to 2,15,190 units.

Domestic two-wheeler wholesales of listed companies were up 27.1% YoY to 10.3 lakh units, and passenger vehicles rose 14.3% YoY to 2.2 lakh units.

Domestic 2W retails in May’23 (1.5mn units) were up ~9% YoY and up 21% MoM, post a dull April’23, with continuation of marriage season and improving rural sentiment. e-2W retails crossed 100k mark in May post a weak April at 66k units, we believe, driven by pre buying on account of pre-empted price hikes on partial subsidy removal.

Maruti Suzuki’s overall wholesale volumes for the month of May 2023 increased by 10.3% YoY/ 10.9% MoM. Total Domestic sales grew by 13.0% YoY/ 5.6% MoM. Exports declined by 2.6% YoY but saw a significant uptick of 56.0% MoM.

Auto Monthly Volume May 2023

Hero Motocorp (HMCL) has reported volume increase of 7%/31% YoY/MoM at ~519k units in May’23. Motorcycle sales volumes increased 8%/33% YoY/MoM at ~489k units vs scooters, which decreased 13% YoY (although 10% higher MoM) at ~30k units.