August-18 automotive volume growth is likely to remain subdued across segments due to a delayed festive season in FY19.
August-18 automotive volume growth is likely to remain subdued across segments due to a delayed festive season in FY19. West Bengal (5% of 2W sales) has also seen disruption due to licences being made mandatory for the purchase of 2Ws. Floods in Kerala could have an impact on sales, especially for PVs and 2Ws. Within our coverage, Maruti Suzuki (MSIL IN) and Royal Enfield volumes could see a worse than expected impact due to high exposure to Kerala.
We expect the MHCV industry to report 8% y-y growth in the month. Our industry interactions indicate retail growth has been slow, as regional transport offices (RTOs) in some areas have started giving permits for higher load carrying capacity for older trucks. Thus, dealer inventory levels have already inched up to more than 30 days, and discounts have also risen m-o-m. Given the current momentum, we believe industry growth could be flat y-y in 2HFY19. Thus, we maintain our Neutral on Ashok Leyland (AL IN).
We expect the 2W industry growth to remain flat y-y, due to a delayed festive season and the impact of floods/issues in West Bengal. Rural demand momentum remains healthy. We maintain our estimate of 10% industry growth in FY19F, and our positive view on Hero Motocorp (HMCL IN). The PV industry is likely to report flat y-y growth, also hit partly by the delayed festive season. Growth is likely to be slower for MSIL (+2% yoy) and industry (ex-MSIL) at -4%. We maintain our positive view on the industry, with 12% y-y growth in FY19F. Also, most players have already implemented price hikes of up to ~2% from August to offset rising commodity costs. For MSIL, the average price hike is 0.4%.
Maruti Suzuki remains our long-term top pick in the sector, given high waiting periods on some models, a strong model cycle and high FCF generation. We also remain positive on MM and HMCL. We estimate MSIL will report 2% y-y growth in overall volumes to 166k units. M&M’s utility vehicles volumes are likely to decline 4% y-y, also due to lack of new launches. The company is likely to unveil its new MPV, the Marazzo, on September 3, which should support volumes. We expect AL MHCV volumes to rise 9% y-y.