Research Analyst: Mitul Shah - Reliance Securities
As per the Society of Indian Automobile Manufacturers (SIAM), domestic auto sales volume (excluding CVs) grew ~18% YoY (up 9% MoM) to 18,08,686 units in May'23. Notably, all segments of the automobile industry witnessed a decent performance in domestic market, supported by healthy urban sales and steady recovery in rural, supported by healthy agri output at higher MSPs. However, exports continue to remain laggards. Industry witnessed strong YoY as well as MoM growth across segments. Marriage season helped industry's retail performance to some extent, while low base led to YoY growth. In PV segment semiconductor supply impacted production to some extent. On the other hand, 3W segments recorded healthy double-digit growth of >70% YoY. UV segment remained clear winner with highest growth of 33.5% YoY, contributing 54% to industry's PV volume.
Despite improvement, overall demand level remained below pre Covid level for 2Ws during the month. The wholesale volume was broadly in line with the retail. We expect volume improvement to continue gradually as nearly normal monsoon and higher water reservoir would support Kharif cropping and rural recovery in coming months. Recent IMD forecasting of normal monsoon further improves rural sentiment and likely better rural economy ahead. Industry would witness steady improvement in FY24 with decent agri output and cool off in inflation, turning customer sentiment positive coupled with stable pricing environment. EV penetration should improve further in 2023. However, near term challenges due to monsoon delay and heat wave may spoil the show and may put some challenge for automobile industry. Therefore, we would monitor the situation closely to gauge the FY24 performance for various segments of the automobile industry, which would depend on timing and distribution of 2023 monsoon.
PV Segment: Overall, PV volume grew by 15% YoY (up 1% MoM) to 2,88,369 units due to better semiconductor supply on YoY basis, new launches and decent retail sales in marriage season. UV sales grew by 34% YoY (up 5% MoM), led by a higher production of new models by key OEMs. While MPV volume grew by 19% YoY (up 22% MoM), PC sales decreased by 3% YoY (down 4% MoM) in May'23. Due to supply mis match and high demand, waiting period for most products still remain high.
Scooter & Motorcycle Segment: Scooter sales grew by 12% YoY (down 4% MoM), motorcycle sales grew by 21% YoY (up 18% MoM). Overall, domestic 2W volume grew by 17% YoY (up 10% MoM). Moped sales increased by 2% YoY (up 3% MoM). Further, 2W production was 1% lower than the sales in May'23. Overall, two-wheeler sales improved on a low base and due to bit of rural recovery and decent urban sales.
3W Segment: Domestic 3W sales increased by strong 70% YoY (up 14% MoM) to 48,732 units on a low base. 3W passenger carriers' sales volume grew by 91% YoY (up 12% MoM), while 3W goods carriers' sales volume grew by 8% YoY (up 40% MoM) in May'23.
CV Segment: SIAM has stopped reporting the monthly CV volume performance since the beginning of FY21 due to unavailability of monthly CV volume data of select OEMs, and hence reports a quarterly volume performance. Thus, we analyse the data on a quarterly basis.
Exports: Overall, exports declined by 22% YoY (up 5% MoM) to 3,39,132 units in May'23. PV exports decreased by 6% YoY (up 30% MoM), while 3W exports decreased by 7% YoY (up 11% MoM). Motorcycle exports decreased by 32% YoY (up 5% MoM) in May'23. Higher inflationary pressure, weakening demand, currency devaluation in few countries and issue of availability of currency (USD) impacted exports sales, it is expected to improve steadily in FY24.
Inventory: In the PV segment, inventory increased at the company level, as production was 1% higher than the sales volume. In the 2W segment, inventory decreased at the company level, as production was 1% lower than the sales volume.
We expect the automobile industry to witness a steady volume improvement across segments in FY24 on the back of expected rural recovery ahead, supported by healthy agri output in Kharif season. As per latest IMD forecast, monsoon would be normal in 2023, despite ElNino effect, which indicates ElNino impact would be much lower than earlier anticipation. This is positive development for Automobile sector, specifically for rural products. We expect continuous improvement in the semiconductor supply helping better PV and EV production ahead. We believe the CV segment would peak out during FY24-mid, while within this segment, M&HCV Bus segment would stage a strong volume with healthy double-digit YoY growth in FY24E. We expect cyclical down turn for M&HCVs and expect double digit decline for the industry in FY25. Overall, we remain constructive on the automobile sector. We expect near term pressure on exports to continue, barring some improvement due to currency devaluation in most exports markets. We have seen positive impact of volume recovery and commodity cost deflation on auto makers' profitability in 4QFY23, while there would be sequential improvement in coming quarters due to lag effect of lower commodity cost benefit and lower energy cost. We believe that gradual price hike, volume recovery and softening commodity prices would improve operating margins in FY24. We remain constructive on tyre sector amid falling raw material prices and likely healthy margins ahead. In case of any major adverse development on 2023 monsoon or climatic condition, which may impact rural economy and automobile consumption going forward, industry performance may get impacted. Therefore, we would monitor the situation closely.