Automotive Sector – Monthly Quick Snapshot – November 21 – Weak Demand Impact and Inventory Correction Post-Festival Performance

According to the Society of Indian Automobile Manufacturers (SIAM), the domestic auto sales volume (excluding CV) declined 32% year-on-year (down 28% month-on-month) to reach 1288,759 units in November 21. Notably , various segments of the automotive industry experienced moderate year-over-year performance, with PV and 2W registering the largest decline due to semiconductor supply issues and weak rural demand. Additionally, the post-festival inventory correction also resulted in lower wholesale shipments across all segments. Few segments recorded growth on a lower basis, while some markets appeared to witness moderate performance, particularly the rural market, due to a slower recovery. Overall, retail sales volume is assumed to be higher this time around due to festival season, while inventory levels for most segments have declined.

PV Segment: Overall, PV volume decreased 19% YoY and 5% MoM to 2,15,626 units. Its UV sales grew 2% year-on-year (down 6% month-on-month), driven by higher production of new models by major OEMs. While MPV volume declined 16% year-on-year and 8% year-on-year, PC sales declined 33% year-on-year and 3% month-on-month in November 21. The semi-issue problem drivers impacted YoY and MoM production. As a result, the waiting period for most products has increased by approximately 2 weeks.

Scooter and motorcycle segment: Scooter sales were down 39% year-on-year (down 34% year-on-year), while motorcycle sales fell 32% year-on-year (down 31% year-on-year) annual). Overall, 2W domestic volume decreased 34% yoy (down 32% mo). Moped sales were down 40% year-on-year (down 23% month-on-month). In addition, 2W’s output was 3% lower than sales on November 21. Overall, sales of two-wheelers were affected due to weaker rural demand, against a backdrop of the unfavorable monsoon.

3W Segment: 3W domestic sales decreased 7% year-on-year (down 29% month-on-month) to 22,471 units on a very weak basis. 3W passenger carrier sales volume increased 14% year-on-year (down 29% year-on-year), while 3W freight carrier sales volume decreased 36% year-on-year (down 31% year-on-year) in November 21.

CV Segment: SIAM has stopped reporting monthly CV volume performance since the start of fiscal 21 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.

Exports: Overall, exports increased 11% year-on-year (down 3% month-on-month) to reach 4,439,649 units. PV exports grew 16% yoy (up 12% yoy), while 3W exports grew 14% yoy (down 1% yoy). Motorcycle exports were up 9% year-on-year (down 1% month-on-month) as of November 21. While container availability and geopolitical issues in a few regions impacted export sales, they are expected to improve over the next few months and register double-digit growth in FY 22E.

Inventories: In the PV segment, inventories increased at the company level with production 3% higher than sales volume. In the 2W segment, inventories decreased at the company level with production being 3% lower than sales volume.

Our View: Given a gradual recovery in the COVID scenario, we expect retail demand across all segments to see some recovery going forward, although the pace of the recovery would be some. bit slow. Festive demand over the past 2 months has remained sluggish in all segments. We expect the impact of a slower recovery on the profitability of automakers in 3TFY22 to continue, due to the higher cost of commodities and the lag effect of the pass-through of the same. on end customers. However, we believe that with increased immunization coverage and the various government initiatives to break the COVID chain, the situation would improve towards the end of fiscal year 22. In addition, the supply constraints of semi -conductors and container availability issues are expected to impact sales and production in the short term, which we believe would be resolved in 4QFY22. We expect the 3W and M & HCV segment to experience strong double-digit volume growth in FY22E. We believe long-term fundamentals remain intact for the automotive sector. As we prefer automakers with a stronger global and CV presence at this point, Ashok Leyland and Bharat Forge remain our top picks.

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