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MOSL: AUTOMOBILES-Companies in inventory correction mode, inquiries remain weak

Automobiles: Companies in inventory correction mode, inquiries remain weak; Cautious financing by NBFCs hurting CV retails

 

Our interaction with leading PV and 2W channel partners indicates a weak inquiries to sales conversion ratio across both segments. This has resulted in high levels of post-festive inventory, which is expected to get corrected in Nov-18 as well. Separately, CV demand has continued weakening for another month in Nov-18. Deferral in purchase decisions, coupled with stringent financing terms by leading NBFCs, has hurt retail sales.  

• CV: Demand has weakened further in Nov-18 (after an abrupt drop in retails in Oct-18), led by deferral in purchase due to vehicle financing constraints. We note that inventory levels remain high at 30-35 days, leading to elevated discounting. We expect CV wholesales for AL and TTMT to decline 6% YoY (-10-15% MoM).
• 2W: Like last month, the inquiries to sales conversion ratio remained weak in the key urban and rural markets. We note of a slowdown in inventory correction, but post-festive inventory still remains high at ~40-45 days. We expect wholesales to grow by 6% YoY at HMCL, and by 31-32% (off a low base) at TVSL and BJAUT. No OEM has taken a price increase in Nov-18 so far.
• PV: Demand trend remains similar to that in 2Ws in key markets like Maharashtra, Gujarat, Rajasthan, UP and Kerala. Inventory levels are high at 4-5 weeks in urban markets, and ~4 weeks in rural markets.