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Auto volumes end fiscal year on high, sustenance holds key to recovery!

ICICI Securities 04 Apr 2022

What’s Buzzing:

Wholesale dispatches by auto OEMs for March 2022 came in as a positive surprise with healthy growth visible across all segments. Leading the sequential growth from the front was the commercial vehicle segment, which witnessed encouraging 20%+ MoM growth and one of its highest reading in the present timeframe of cyclical recovery (last 3 years). The 2-W space also surprised positively with the industry leader reporting 25%+ sequential growth for the month. PV segment on the other hand, on a high base, managed to report mid-single digit growth amidst concerns over semi-conductor chip availability. Retail volumes as tracked by Vahan database also point to smart recovery at ~92% of pre-Covid levels for March 2022.

Context:

Automobile wholesale numbers have been intermittently impacted by a host of reasons notable being an increase in cost of ownership of vehicles due to regulatory changes, Covid-19 led disruptions and muted demand prospects. Against this backdrop volume numbers for March 2022 came in encouraging. In the PV space, Maruti Suzuki (MSIL) sales volume jumped 3.9% MoM at 1.66 lakh units while volumes at Tata Motors were up 5.7% MoM at 42,466 units. More importantly, at Tata Motors, EV volumes were up 18% MoM at 3,357 unit’s vs 2,846 units clocked in February 2022. In the CV space, market leader Tata Motors (TML) reported March 2022 CV volumes of 47,050 units, up 25.3% MoM while Ashok Leyland reported volume prints of 20,123 units, up 37.3% MoM (highest in last three years).

Our perspective:

The fiscal year ended on a high note with MSIL reporting 13.4% YoY growth in total volumes for FY22 at 16.5 lakh units. The same at Tata Motors was at 7.3 lakh units, up 50% YoY and M&M at 4.7 lakh units, up 32% YoY. Similar readings for the 2-W space, however. remain muted due to stiff completion emerging from electric mobility segment by new age start-up OEMs and muted demand prospects at the entry level segment especially on the rural front. In the tractor space, high base resulted in YoY de-growth with volumes at Escorts down 11.7% YoY at 0.9 lakh units and largely flat at M&M at 3.5 lakh units. Going forward, demand prospects continue to remain strong in the passenger vehicle and commercial vehicle space amidst need for personal mobility and greater infrastructure spend/revival in capex cycle respectively, whereas the 3-W space is expected to see green shots amid reopening of schools and colleges. However, the sustenance of the present volume readings holds the key to growth in volumes in FY23E amid further pressure on cost of ownership of vehicles both on the initial purchase price due to rise in global commodity prices and operating costs amid a rise in retail fuel prices as well as sooner than expected EV transition.

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