Automobiles & Auto Components share price target

Domestic 2W retails in Apr’23 (1.23mn units) were down ~7% YoY as festivities (Navratri) was in March this year vs in April in CY22. Other than this factor, we do not see much deviation in the trend of gradual recovery in overall domestic 2W retails, including rural.

Hero Motocorp (HMCL) has reported a decline of 5%/24% YoY/MoM at ~396k units. Motorcycle sales volume decreased 6%/24% YoY/MoM at ~369k units vs scooters, which increased 5% YoY (although lower 18% MoM) at ~27k units.

PV revenue growth likely to remain strong in Q4 at ~20% YoY for our coverage but margin pressure set to continue

As per data released by the Federation of Automobile Dealers Associations (FADA), total retail sales for Q4FY23E saw a growth of 14.4% YoY but declined by 7.4% QoQ. All sub-segments (except Tractors) saw YoY growth in double digits during the quarter.

We recently interacted with a large Bihar-based Maruti and Honda 2W dealer, to get a ground-level understanding of both urban and rural markets. Key takeaways: 1) the dealer is expecting FY24 PV and 2W growth at 8-10% and ~12- 15% respectively.

We expect Q4FY23 to be a robust quarter for our auto coverage universe led by YoY revenue/EBITDA/PAT growth of ~18%/~30%/~50%. More than 20% volume growth in 4Ws and reversion in raw material costs would be the key triggers for the impressive sectoral earnings growth, we believe.

Auto - Q4FY23 - Earnings Preview

We recently interacted with a number of commercial vehicle (CV) dealers in Gujarat and Rajasthan to grasp the demand outlook. Key takeaways: a) Feb’23 and Mar’23 retail volumes included ~20-30% impact of pre-buying before the 4-5% RDE-related price hikes anticipated to be effective from Apr’23;

Retail sales for the automobile industry as a whole rose by 13.8% YoY to 20.4 lakh units in March 2023. Two-wheeler retail sales went up 12.4% YoY to 14.4 lakh units, while car retail sales increased 14.4% YoY to 3.4 lakh units.

On a year-on-year basis, gains were seen across all auto segments, with three-wheeler sales growing the most, by 68.7%.