Mr. Mitul Shah - Head of Research at Reliance Securities
Most of the Automobile companies reported decent set of volume performance for the month of May'22 with healthy YoY growth on a low base. Few players have successfully exhibited MoM improvement too, while few players cited semiconductor shortage as a reason for production constraint. Marriage season in North and gradual rural recovery has supported sales of tractors, 2Ws and PVs. Tractor performance is major positive surprise with 40-50% YoY growth, despite wheat export ban. CVs also delivered more or less in line performance with better traction of Bus segment. Buses and 3Ws got support from opening of schools and colleges in Jun'22 after 2 years. We expect better traction for automobile industry to continue on the back of expected normal monsoon boosting rural economy and farmers' positive sentiment in coming months. However, higher commodity cost, elevated inflation and rate hike would continue impacting profitability of these companies for next 1-2 quarters. We expect better margins and profitability for Auto makers in 2HFY23E with volume up tick and likely commodity softening. We like TVS Motor and M&M within our Auto coverage universe.