Auto Sector - Monthly Volume Round-up - Nov 20 - Reliance Securities

Strong YoY Growth; Post-festive Slump Might Impact Near-term Volume

Key Findings:

- Most segments witnessed YoY growth in domestic sales volume due to Diwali festival falling in Nov

- PVs and 2Ws volume grew by single-digit, while Tractor volume witnessed strong double-digit growth

- Overall wholesale volume across categories were either in line or lower than retail volume due to festive demand, positive sentiment and gradual opening of urban markets

Key Highlights:

- Indian automobile companies reported higher YoY sales volume across segments in Nov'20 (barring M&HCV and 3W segments) on the back of festive season, demand recovery in urban markets and continued healthy demand in rural markets.

- In most segments, wholesale volume was lower than the retail volume, which picked up faster. Inventory level at the end of Nov'20 across segment fell by 0-2 weeks due to healthy off-take during the recently-concluded festive season. Notably, supply constraint restricted the wholesale volume of few companies.

- PV segment is expected to have grown by 9% YoY, while Tractor segment reported a strong 50% YoY volume growth in Nov'20 led by positive sentiment following a healthy Rabi output and strong Kharif sowing, favourable monsoon and increasing production by the manufacturers.

- Within the CV segment, LCV sales volume has been witnessing remarkable improvement during the past few months. M&HCV segment witnessed improvement due to volume traction in M&HCV cargoes, while M&HCV bus segment continued to fall by 70-90% YoY in Nov'20. 3W segment was the worst performer with 35% YoY fall in sales volume in the reporting month.

Our View

Looking ahead, we expect decent volume traction to continue in 4QFY21E as well due to improved economic activities across the country, while the scenario may become bit challenging in the near-term due to post-festive slump. We believe increasing positive sentiment, increased footfalls and higher enquiry levels coupled with steadily opening of the urban markets would help the automobile volume, going forward. We expect the industry volume to record double-digit volume decline in FY21E barring tractor segment. Ongoing positive momentum is expected to continue in tractor, 2W and PV segments, while M&HCV segment would recover in 4QFY21. We remain positive on automobile sector and Ashok Leyland and Escorts continue to remain our top picks.

2W: BAL's sales grew by 5% YoY (down 18% MoM) to 4,22,240 units, while HMCL's sales grew by 14% YoY (down 27% MoM) to 5,91,091 units, and TVSL's sales grew by 21% YoY (down 18% MoM) to 3,22,709 units.

PV & CV: M&M's auto volume grew by 4% YoY (down 4% MoM) to 42,731 units and MSIL's volume grew by 2% YoY (down 16% MoM) to 1,53,223 units. ALL's volume grew by 5% YoY (up 7% MoM) to 10,659 units, while TTMT reported sales of 49,623 units, up 21% YoY (down 5% MoM).

Tractor: M&M's tractor volume grew by 56% YoY (down 30% MoM) to 32,726 units and Escorts' sales volume grew by 33% YoY (down 26% MoM) to 10,165 units.

Our Top Picks: Ashok Leyland and Escorts

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Source : Equity Bulls

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