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Festive cheers lifts OEM dispatches across segments for September 2022!!

ICICIdirect Research 03 Oct 2022 DISCLAIMER

What's Buzzing 

OEMs reported healthy wholesale dispatches for September 2022 with MoM growth witnessed across segments. The CV space outperformed its peers with high double digit MoM volume growth especially in the M&HCV domain while it was a seasonally strong month for the tractor space (>20% YoY growth) riding on positive monsoon 2022 (106% of LPA). The 2-W space also witnessed healthy double digit growth led by innovative offerings in premium segment by Royal Enfield brand at Eicher Motors and channel inventory build-up before the festive season by the industry leader. On the other hand, the PV space recovered MoM with mid-single digit growth riding on a strong order book and elongated waiting periods across OEMs. 

Context 

In the 2-W pack, market leader Hero MotoCorp reported 12.4% MoM growth at 5.2 lakh units while Royal Enfield brand at Eicher Motors reported volume growth of 17.1% MoM at 82,097 (highest monthly reading in the recent past). In the PV space, volumes at Maruti Suzuki grew 7.4% MoM at 1.74 lakh units (highest in the last 23 months) led by an uptick in UV sales while volumes at M&M came in at 34,508 units, up 15.6% MoM (highest ever monthly reading) and were largely flat at Tata Motors at 47,864 units. In the CV segment, market leader Tata Motors (TML) reported volumes of 34,890 units, up 10.8% MoM while Ashok Leyland reported 24.3% MoM growth in volumes to 17,549 units (at a six months high) and Eicher Motors (VECV arm) reported volume growth of 32.5% at 6,631 units. In the tractor space, M&M posted 21% YoY volume growth at 48,713 units (highest ever monthly reading) while Escorts reported 39% YoY growth at 12,232 units. 

Our Perspective 

The upcoming festive season (Dussehra-Diwali) in 2022 marks the first normal festive season post Covid incidence. Hence, expectations are high that healthy retails may be clocked during this period. The same optimism was witnessed in OEM dispatches wherein broad based MoM growth was witnessed across segments. Part of it was a function of already strong retail demand especially in the PV segment and part of it was on account of inventory build-up ahead of the festive season. Key outperformer for September 2022 in the segment domain was the CV and tractor space wherein volume prints were ahead of our expectations. Key outperformers within key segments were Eicher Motors with RE brand in the 2-W space, M&M in the PV domain, Ashok Leyland in the CV space and Escorts in the tractors domain. With government spend on infrastructure, improved fleet utilisation, upcoming festive season and strong order book at key OEMs, we expect PV and CV space, in particular, to witness a healthy pick-up in sales volume, going forward. We remain positive on the auto space given the expectation of double digit volume growth in the near term coupled with benign commodity price outlook leading to healthy margin recovery and consequent improved return ratios profile.

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