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Automobile Sector - Monthly Quick View - Aug'21 - Mixed Performance across Segments - Reliance Securities

Posted On: 2021-09-15 12:47:12 (Time Zone: UTC)

As per the Society of Indian Automobile Manufacturers (SIAM), domestic auto sales volume (excluding CVs) de-grew by 11% YoY (up 3% MoM) to 15,86,873 units in Aug'21. Notably, various segments of automobile witnessed mixed YoY and MoM performance. Few segments reported growth on lower base. While few markets appeared witnessing subdued performance, particularly rural markets due to monsoon deficit. Calibrated opening in most regions including the villages resulted in improvement in retail volume and wholesale dispatches. Overall retail sales volume this time is assumed to have been marginally better due to gradual recovery in demand and better consumer sentiment, while wholesale volume was lower due to production constraints for few segments. Overall inventory level of most segments remained more or less flat or marginally lower. Moreover, PV production was impacted by limited availability of semiconductors in Aug'21.

PV Segment: Overall PV volume grew by 8% YoY (down 12% MoM) due to 38% YoY (down 9% MoM) growth in UV sales led by higher production of new models by the key OEMs. While the MPV volume grew by 16% YoY and 5% MoM, PC sales decreased by 13% YoY and 17% MoM in Aug'21. Lower base supported YoY growth, while semiconductor issue impacted MoM production.

Scooter & Motorcycle Segment: Scooter sales de-grew by 1% YoY (up 23% MoM), while motorcycle sales fell by 20% YoY and 1% MoM. Overall domestic 2W volume de-grew by 15% YoY (up 6% MoM). Moped sales de-grew by 25% YoY (up 7% MoM). Further, 2W production was 3% lower than the sales in Aug'21. Overall two wheeler sales was impacted due to weaker rural demand amid adverse monsoon.

3W Segment: Domestic 3Ws sales increased by 60% YoY (up 30% MoM) to 23,210 units. 3W passenger carriers' sales volume grew by 98% YoY (up 41% MoM), while 3W goods carriers' sales volume grew by 14% YoY (up 12% MoM) in Aug'21.

CV Segment: The SIAM has stopped reporting monthly CV volume performance since beginning of FY21 due to unavailability of monthly CV volume data of select OEMs and reports quarterly volume performance instead. Therefore, we analyze these data on quarterly basis only.

Exports: Overall exports grew by 38% YoY (down 3% MoM) to 4,61,156 units. PV exports grew by 34% YoY (down 2% MoM), while 3W exports decreased by 7% YoY (down 18% MoM). Motorcycle exports grew by 39% YoY (down 2% MoM) in Aug'21. While Container availability and geopolitical issue in few regions impacted exports sales, it is expected to improve in coming months and report double-digit growth in FY22E.

Inventory: In PV segment, inventory decreased at the company level, as the production was 7% lower than the sales volume. In 2W segment, the inventory decreased at the company level, as the production was 3% lower than the sales volume. Factory inventories decreased across the OEMs due to higher dispatches to dealers due to easing out of restrictions in several districts.

Our View: Considering gradual recovery in the COVID scenario, we expect retail demand across segments to witness some recovery in the near-term albeit the pace of recovery would be somewhat slow. Whilst we expect volume to improve in the next 2 months, there is uncertainty related to festive demand towards the start of 3QFY22. Apart from control on incremental COVID caseload, rainfall situation by Sep'21-end would decide how the demand scenario would pan out, going forward. Despite double-digit growth in Jul'21, we expect impact of slower recovery profitability of the auto makers in 2QFY22 due to higher commodity cost and lag effect of passing on the same to the end customers. However, we believe that with increasing vaccination coverage and government's various initiatives to break the chain of COVID, situation would improve in 2HFY22E. Moreover, semiconductors supply constraint and container availability issues are expected to impact sales and production in the near-term, which we believe would get resolved in 2HFY22. We expect M&HCV segment to witness a strong double-digit volume growth in FY22E. We believe the long-term fundamentals continue to remain intact for automobile sector. As we prefer the auto companies with stronger global presence and with stronger CV presence at this juncture, Ashok Leyland, Bharat Forge and RK Forgings continue to remain our top picks.

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Source: Equity Bulls

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