MOSL: AUTOMOBILES-Auto retails weak in certain markets-rural sales healthy-Steep increase in discounts in CVs

​AUTOMOBILES: Auto retails weak in certain markets; rural sales healthy; Steep increase in discounts in CVs ahead of regulatory change in Jan-18

• 2W demand remains mixed, as the momentum gained from the wedding season in the northern belt is partially negated by muted sales in Rajasthan, Gujarat and Maharashtra. HMCL witnessed strong demand for motorcycles during the recently concluded wedding season in north.
  
• PV retails are picking up, driven by the year-end discounts and the rush to beat price increases from January. MSIL continues to see better retails than competitors: S-cross bookings stand at ~12k units, with a waiting period in excess of 4 weeks.
  
• CV players are offerings steep discounts (~5% higher) and other incentives to clear the current stock ahead of the upcoming regulatory change that makes it mandatory for all new CVs to have air blowers (for better ventilation in the cabin) as a standard fitment from 1st January 2018.
  
• We prefer 4Ws over 2Ws and CVs due to stronger volume growth and a stable competitive environment. Our top picks in autos are MSIL, Bajaj Auto, Tata Motors and Amara Raja.
  

2Ws: Weak retails in Rajasthan, Gujarat and UP due to inauspicious period

• Retail demand for 2W was seasonally weak, as the Kharmas period (inauspicious days) hurt sales in the markets of Rajasthan, Gujarat and certain regions in UP.
  
• However, we note that off-take remains relatively good in other western markets like Maharashtra, and southern markets like TN, Karnataka and AP.
  
• We also note the growth rate in rural markets continues to be healthy, led by an improvement in rural sentiment and better crop realization (of onion, cotton, mustard, sugar cane, etc.).