Automobiles & Auto Components share price target

Auto Monthly Volume July 2023

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.

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.

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

Retail sales for the automobile industry as a whole rose 9.6% YoY, but fell 7.7% MoM in June 2023 to 18.6 lakh units. Two-wheeler retails sales were up 6.8% YoY to 13.1 lakh units, while car retail sales increased 4.8% YoY to around 3 lakh units.

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

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.

Automobile wholesales of listed companies rose 22.1% YoY and 13.5% MoM to 12.9 lakh units in June. While exports fell 26.9% YoY, they increased by 9% MoM to 2,37,508 units.

Domestic two-wheeler wholesales of listed companies were up 7.3% YoY to 8.9 lakh units and passenger vehicles rose 9.3% YoY to 2.1 lakh units.

Auto Monthly Volume June 23

Hero Motocorp (HMCL) has reported volume decline of 10%/16% YoY/MoM at ~437k units in Jun’23. Motorcycle sales volumes decreased 12%/17% YoY/MoM to ~404k units vs scooters, which increased 39%/8% YoY/MoM to ~33k units. Late festive season this year resulted in the company tightening inventory further from 40 days we believe, and should start pushing wholesales from Aug’23 onwards.