1. Maruti Suzuki to Tata Motors, Bank of America Merrill Lynch sheds light on retail sales

Maruti Suzuki to Tata Motors, Bank of America Merrill Lynch sheds light on retail sales

Disparity with wholesale trends in August; demand was weaker for CVs than PVs and 2Ws.

New Delhi | Published: September 5, 2017 2:23 AM
Maruti Suzuki, Tata Motors, Bank of America Most dealers suggest that the high levels of discounts in June/July (ahead of GST) have led to pre-purchases which continue to impact recent retail demand. (Reuters)

Our channel checks indicate that retail demand in Aug-17 has been somewhat muted across product segments ahead of festive season. Most dealers suggest that the high levels of discounts in June/July (ahead of GST) have led to pre-purchases which continue to impact recent retail demand.

We highlight that retail demand has been weaker for trucks (CVs) than passenger vehicles (PVs) and 2Ws. OEMs still expect a strong festive season (Sept and Oct) and continue to build up inventory, which provides contrary indicators between wholesale and retail dispatch trends for now. In our view, it is still pre-mature to assess the festive season. We remain constructive on a recovery in rural demand in H2FY18 and FY19 and prefer M&M and Tata Motors (both rated Buys) within the sector. We rate Maruti, Hero Motocorp and Bajaj Auto as Neutral given the limited upside to current stock prices.

Passenger vehicles: New launches support overall demand — PV volumes have grown steadily for the last few months on the back of strong demand for new products/facelifts across OEMs and tailwinds from government employee spending (7th pay commission). However, discounts have trended higher in Aug-17 for the remaining products, especially entry-levels cars. Within PVs, Maruti Suzuki continues to be well positioned with a consistent waiting and nil discounts across new products. However, other OEMs continue to see increasing discounts and higher inventory levels in some cases as well. Tata Motors with its new launches is faring well recently.

Two-wheelers: Retail weak but signs of rural pickup seen — Our dealer checks for two-wheelers indicate that (i) overall retail demand in Aug-17 has been muted owing to high discounts in April and June (BS4 and GST related); (ii) West and Central India have seen better demand than other parts  primarily due to local festivals; (iii) motorcycle demand has improved in recent months as rural demand improves; (iv) while some discount schemes have been rolled back in July/Aug (post GST), the overall pricing scenario remains weak (Honda continues to offer discounts across products). In our view, a recovering rural demand is likely to aid overall 2W demand.

Commercial vehicles: Impacted materially post GST—Truck demand appears to be the worst-hit. Most dealers are expecting negative retail growth y-o-y in August. Demand from large fleet owners and logistics companies has also slowed down materially and is expected to weigh on festive season retails. Discounts continue to remain high, with some dealers also highlighting that inventory levels are at higher than average levels. We expect the industry wholesale dispatches to reflect this weakness in the coming months.

—Bank of America Merrill Lynch

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