Wholesales in Aug’22 for 2Ws and Tractors were in line, while that for PVs and CVs were below our estimate. PV wholesales were flat sequentially. Model launches and order backlog for OEMs will help sustain PV demand. Domestic 2W wholesales have started picking up, while exports remain under stress. CV demand remains stable. Among 2Ws, wholesales for TVS/Royal Enfield (RE)/Honda were in line, while that for Bajaj were above our estimate. Volumes for 2Ws/PVs/CVs/3Ws/Tractors grew 8%/43%/ 16%/ 28% /2% y-o-y.
2Ws – in line, up 8% y-o-y: Domestic wholesales for OEMs were above our estimate, indicating a build-up in inventory ahead of the upcoming festive season, while exports were under stress. Semiconductor shortages for OEMs are showing signs of easing. As per channel checks, dealer inventory is at 55-60 days (v/s 30-45 days in Q1). Volumes grew 5/2/15/53% y-o-y for Bajaj/ Honda/TVS/ Royal Enfield (RE).
PVs – below our estimate, up 43% y-o-y: Retail demand remains stable. Easing semiconductor shortages have led to a decline in the waiting period for models across OEMs, though the situation remains uncertain. Maruti (MSIL), Mahindra (M&M), and Tata Motors (TTMT) PV volumes grew 26%, 95%, and 68% y-o-y, respectively.
CVs – up 16% y-o-y: M&HCV/LCV volumes grew 29%/7% y-o-y. Volumes for Ashok Leyland (AL)/TTMT/ Volvo Eicher grew 51/6/4% y-o-y.
Tractors – in line, grew 2% y-o-y: The monsoon has largely remained above its LPA, but uneven rainfall in key paddy states in eastern India is impacting sowing. Tractor volumes for M&M remained flat y-o-y, but grew 7% for Escorts (ESC).
Highlights from the monthly volumes:
2Ws: Growth in domestic wholesales indicates a build-up in inventory ahead of the festive season. Retail demand is picking up slowly. Exports remain subdued due to issues in export markets. RE posted its highest ever wholesales in Apr-Aug’22, which indicates that supply chain issues are largely behind it.
Valuation and view: While easing semiconductor supplies boosted PV retails, and increasing economic activity and higher capacity utilisation propelled CVs, the 2W segment is yet to recover amid a high cost of ownership. We prefer 4Ws over 2Ws on the back of strong demand and a stable competitive environment. We expect the momentum in the CV cycle to continue. We prefer companies with: a) a higher visibility in terms of a demand recovery, b) a strong competitive positioning, c) margin drivers, and d) balance sheet strength. MSIL and AL are our top OEM picks.