1. Medium and Heavy commercial vehicles spring a surprise

Medium and Heavy commercial vehicles spring a surprise

The key surprise for August was strong 31% y-o-y growth in Medium and Heavy commercial vehicle (MHCV) industry volumes, compared with our estimate of 4% y-o-y growth.

By: | Published: September 11, 2017 3:57 AM
Medium and Heavy commercial vehicle, Medium and Heavy commercial vehicles, Medium and Heavy commercial vehicle growth, mhcv, mhcv growth, nomura, nomura on mhcv growth, nomura on Medium and Heavy commercial vehicle growth Passenger vehicles (PV) industry was up 12% y-o-y , in line with our estimate. This was largely driven by Maruti Suzuki (MSIL IN, Buy), which reported robust 26.7% y-o-y growth.

August volumes saw MHCVs deliver robust 31% y-o-y growth and PVs/2Ws report strong 12%/15% growth. The key surprise for August was strong 31% y-o-y growth in Medium and Heavy commercial vehicle (MHCV) industry volumes, compared with our estimate of 4% y-o-y growth. The surprise was across players. Companies indicated that stricter implementation of overloading norms and a demand uptick in the tipper segment benefitted volumes. However, retails were lower leading to higher inventory levels in the segment. Given the strong uptick, there could be upside to our view of a 5% y-o-y decline in industry volumes in FY18F.

Passenger vehicles (PV) industry was up 12% y-o-y , in line with our estimate. This was largely driven by Maruti Suzuki (MSIL IN, Buy), which reported robust 26.7% y-o-y growth. Industry retails were also up in healthy double digits, which is a positive. Moreover, companies with >4m length car portfolio have seen a sharp 40-50 % jump in customer orders post announcement on cess hike in September.

2W industry volumes were also strong at 15% y-o-y growth, compared to our estimate of 8% y-o-y, largely led by inventory-filling. Honda Motorcycles (HMSI) continued to drive volumes with robust 26% y-o-y growth. We expect mid-single-digit growth in retails for the industry.

Tractor volumes rose ~22% y-o-y for Mahindra and Mahindra (MM IN, Buy), and similar ~23% y-o-y for Escorts (ESC IN, NR). We maintain MSIL as our top pick in the sector. We also like MM due to healthy rural demand and the launch of its new MPV in 2HFY18.

PV industry volumes up 12% y-o-y

MSIL reported robust numbers, with domestic/overall volumes up 26.7%/-15.6% y-o-y, largely in line. Our 13% y-o-y growth forecast for FY18F implies 150k units per month, up 11% y-o-y. MM’s UVs reported 7% y-o-y growth, largely in line. Amongst other unlisted players, Hyundai/Honda reported 9%/25% growth.

MHCV industry up 31% y-o-y

Ashok Leyland’s overall MHCV volumes grew 29% y-o-y (Nomura: +10%). Domestic volumes rose 25% y-o-y. Given the strong show, we see upside risk to our implied volumes of 10.6k units for 7MFY18. Tata Motors reported strong 39% y-o-y growth in domestic volumes (Nomura: +5%) and has seen consistent market share improvement over the past three months (52.7% in Aug-17 from 45% in Jun-17). VECV also reported 9% y-o-y volume growth, marginally ahead of our estimate.

Two-wheeler volumes up 15% y-y

Hero MotoCorp (HMCL IN, Neutral) reported 10% y-o-y growth, in line with our estimate. BJAUT’s overall volumes at 336k units were 3% ahead. Management indicated strong traction in exports and 3-wheelers. However, rising competition in domestic motorcycles would continue to remain a challenge. Royal Enfield’s growth of 22% y-o-y was also ahead of our estimate of 15%. TVS reported healthy 13% y-o-y growth in domestic 2W volumes.

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