Automobiles & Auto Components share price target

We recently interacted with dealers of Maruti Suzuki, Honda Cars and Tata Motors CVs in and around the city of Kochi (in Kerala). Key takeaways from our dealer interactions include: 1) Value-for-money SUVs continue to drive retail demand, where customers are ready to pay in excess of INR 1.2mn on-road prices; 2) hybrid-model demand is being driven by status quotient of owning environment-friendly model and not unit economics.

Retail sales in the automobile industry rose by 8.6% YoY and 2.6% MoM in August 2023 to 18.2 lakh units. Two-wheeler retail sales also increased by 6.3% YoY to 12.5 lakh units, while car retail sales improved by 7% YoY to around 3.1 lakh units.

All segments of the industry, except for Tractor OEMs, observed a MoM rise during this period.

Automobile wholesales of listed companies fell by 0.6% YoY to 13.5 lakh units in August, while exports decreased by 2.2% YoY to 2,40,535 units.

Domestic two-wheeler wholesales of listed companies declined by 6.1% YoY to 9.4 lakh units and passenger vehicle wholesales rose by 13.1% YoY to 2.4 lakh units.

Despite festive season being from October this year as against September last year, PV players continued to increase systemic inventory by reporting yet another month of wholesales being ahead of retails, with inventory levels already being on the higher side in Jul’23-end. 2W companies in general, post managing inventory efficiently since Apr’23, reported volumes largely in sync with retails and in pockets increased inventory post keeping it under control till Jul’23 (example HMCL).

Domestic 2W retails in Aug’23 (1.26mn units) were up ~6% YoY and up 2% MoM, as low base till Sep’22 is helping the industry report YoY growth. However, with the end of marriage season in May-Jun’23, retails in Aug’23 remained subdued below 1.3mn. e-2W retails continued to be tepid though improving every month from the Jun’23 lows, and were at ~62k units vs 54k MoM and vs May’23 highs of ~104k units.

As per our channel checks and analysis of wholesale vs retail data of vehicles sold in Apr-Jul’23, inventory levels for PVs have increased vs CVs/2Ws managing it far better. Cumulative inventory addition for key PV players like MSIL/MM in Apr-Jul’23 is now at 84% of Jul’23 retails, implying limited scope for further inventory addition in Aug Sep’23.

Top Sector Ideas - Auto and Auto Ancillaries

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.