Automobiles & Auto Components share price target

Top Sector Ideas - Auto and Auto Ancillaries

Retail sales for the automobile industry as a whole rose by 10% YoY, but fell by 5% MoM in July 2023 to 17.7 lakh units. Two-wheeler retail sales were up 8.2% YoY to 12.3 lakh units, while car retail sales grew by 4% YoY to around 3 lakh units.

All segments of the industry, except for three-wheelers, observed a month-on-month fall during this period.

Automobile wholesales of listed companies rose marginally by 1% YoY to 12.1 lakh units in July, while exports fell by 16.9% YoY to 2,49,213 units.

Domestic two-wheeler wholesales of listed companies were down 3.4% YoY to 8.1 lakh units, and passenger vehicle wholesales rose 8% YoY to 2.3 lakh units.

Wholesale volumes in Jul’23 were expected to be weak for all segments due to seasonality and are expected to remain subdued in Aug’23 too as building up of inventory would start in Sep’23 rather than Aug’23 with festive season being in Oct-Nov’23 this year. M&HCVs, tractors and 3Ws continued to deliver better-than-expected volumes in Jul’23, as against PVs and 2Ws continuing to consolidate.

Domestic 2W retails in Jul’23 (1.2mn units) were up ~8% YoY and down 6% MoM, as low base till Sep’22 is helping industry report YoY growth, though with the end of marriage season in May-Jun’23 and the onset of rainy season, retails in Jul’23 were down sequentially.

Auto Monthly Volume July 2023

As per data released by the Society of Indian Automobile Manufacturers (SIAM) for Q1FY24, 3-wheelers, Passenger Vehicles (PV) and Commercial Vehicles (CV) segments saw a sequential decline in domestic volumes while 2-wheelers saw better domestic volumes QoQ.

In the past week highlighted by launch of Harley Davidson X 440 and Triumph Speed 400, with an average on-road price of ~Rs280k, Eicher Motors (EIM) has corrected by 12% and is trading at ~20x FY25E earnings.

Auto - Q1FY24 - Earnings Preview

We expect Q1FY24E to be a robust quarter for our auto coverage universe led by YoY revenue/EBITDA/PAT growth of ~15%/~30%/~50%, respectively. More than 15% volume growth in both 2Ws, 4Ws (each) and reversion in raw material costs would be the key triggers for the impressive sectoral earnings growth, we believe.