Automotive – Monthly Snapshot – March 22 – Weaker demand will impact 4QFY22 performance

According to the Society of Indian Automobile Manufacturers (SIAM), domestic auto sales volume (excluding CV) fell 18% YoY (up 13% MoM) to 14,95,848 units in March 22. , various segments of the automotive industry saw a subdued annual performance, with PV and 2W registering a larger decline due to semiconductor supply issues and weak rural demand. Moreover, the lingering geopolitical issue has impacted consumer sentiment to some extent. Although overall demand remained subdued, there was MoM improvement in rural demand. Overall, wholesale volume was higher than retail volume due to inventory being built up ahead of the auspicious Navratra festival. The CV segment of the automotive space performed better due to year-end purchases to benefit from depreciation.

PV Segment: Overall, PV volume was down 4% YoY (up 6% MoM) to 2,79,501 units, mainly impacted by shortage of semiconductor supply. Its UV sales were up 8% year-on-year (up 10% month-on-month), driven by higher production of new models by major OEMs. While MPV volume was down 19% YoY (up 2% MoM), PC sales were down 12% YoY (up 3% MoM) in March 22 The semiconductor issue eased a bit sequentially due to the diversion of some shipments from Russia to Asian countries amid an ongoing geopolitical issue, but remained entirely unresolved, which had impact on annual production. Therefore, the waiting time for most products remains high.

Scooter and Motorcycle Segment: Scooter sales were down 21% YoY (up 5% YoY), while motorcycle sales were down 21% YoY (up 20% YoY monthly). Overall, 2W domestic volume was down 21% YoY (up 14% MoM). Moped sales were down 16% YoY (up 5% MoM). Additionally, 2W production was 2% higher than March 22 sales. Overall, two-wheeler sales were impacted due to weaker rural demand, amid heavy rainfall.

3W Segment: Domestic 3W sales decreased 1% YoY (up 19% MoM) to 32,088 units on a low base. 3W passenger carrier sales volume increased 6% YoY (+19% MoM), while 3W freight carrier sales volume decreased 14% YoY (+18% MoM) in March 22.

CV Segment: SIAM has stopped reporting monthly CV volume performance since the start of FY21 due to the unavailability of monthly CV volume data from some OEMs, and therefore reports quarterly volume performance. Thus, we analyze the data on a quarterly basis. During 4QFY22, overall domestic CV volume increased 19% YoY (up 28% QoQ) to 2,49,806 units, with M&HCV increasing 17% YoY (up 47% QoQ) to 93,974 units and LCVs up 20% YoY (up 19% QoQ) to 1,55,832 units.

Exports: Overall, exports were up 3% YoY (down 3% YoY) to 4,51,058 units. PV exports increased 53% YoY (up 20% MoM), while 3W exports decreased 3% YoY (up 7% MoM). Motorcycle exports increased 1% YoY (down 6% YoY) in March 22. While container availability and geopolitical issues in a few regions impacted export sales , they should improve over the coming month.

Inventory: In the PV segment, inventory decreased at the corporate level, with production being 4% lower than sales volume. In the 2W segment, inventory increased at the corporate level, with production 2% higher than sales volume.

Our view: Due to the ongoing slowdown and the negative implications of geopolitical issues, we expect demand to remain subdued over the next 1-2 months, while a gradual recovery is expected towards the end of 1QFY23. Additionally, the recent global geopolitical issues amid the Russian-Ukrainian war are having a negative impact on the business environment, which is creating a negative demand sentiment for consumption. We expect the impact of a slower recovery and higher raw material cost on automakers’ profitability in 4QFY22, due to the sharp rise in raw material cost and the lag effect of the impact on end customers. Moreover, its impact on margins would also be felt in 1QFY23. However, we believe that a gradual rise in prices and a recovery in volumes would improve operating margins in 2HFY23, contrary to our expectation of a likely recovery in 1HFY23 due to the ongoing global turmoil. Additionally, semiconductor supply constraints and container availability issues are expected to impact sales and production in the near term, which we believe will be resolved in 2HFY23. We expect the 3Ws and M&HCV segment to experience strong double-digit volume growth in FY23E. We believe that the long-term fundamentals remain intact for the automotive sector. We remain constructive on two-wheeler stocks in an attractive valuation environment. We expect the 2W segment to rebound in the domestic market as well as exports in FY23. In addition to valuation comfort, the risk-reward ratio is favourable, which would provide strong outperformance going forward. We also like the PV segment amid the number of new launches next year and strong demand prospects supported by a healthy order book. Therefore, TVS Motor, Bajaj Auto and Maruti Suzuki remain our top picks.

Source: Stock market bulls

Keywords


Car
Industry Update
Monthly view
March2022
RelianceSecurities

Comments are closed.