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MOSL: AUTOMOBILES-Demand intact for PVs, muted for 2Ws/CVs; Customers holding back for higher discounts on BS4

Automobiles: Demand intact for PVs, muted for 2Ws/CVs; Customers holding back for higher discounts on BS4

 

Our interaction with leading industry channel partners indicates positive demand trends in PVs, but continued weakness in 2Ws, CVs and tractors. Compared to Jan’19, wholesales are expected to be lower in Jan’20 for all OEMs due to the transitory issues for BS6 vehicles and the weak demand environment. For 2Ws/CVs, inquiries and conversions have been weak, whereas in PVs (particularly for MSIL), the conversion of inquiries has been subdued due to supply side issues (BS6 related) for select models. Also, in CVs, financiers are turning cautious to avoid risk of financing unregistered BS4 vehicles. Pick-up in tractor sales has been subdued due to low visibility on demand from construction activity, despite the strong monsoon/harvest season. 

• In Jan'20, wholesale volumes are estimated to decline ~8%/~9%/~14% YoY for 2Ws/PVs/tractors. In CVs, volumes are expected to decline ~1% for LCVs and ~27% for M&HCVs.
• 2Ws: Ongoing marriage season has failed to revive 2W sales in Jan'20. Demand remained weak in both urban/rural areas due to the absence of expected heavy discounts on BS4 variants and deferred buying decisions given expensive BS6 variants. OEMs have built-up inventory levels to 30-35 days in anticipation of strong pre-buy, and dealers are confident on liquidating stock by Mar'20. We expect wholesales to decline by 5% YoY for BJAUT (15% fall in dom. 2W), 11% YoY for TVSL and 6% for HMCL. RE volumes are expected to decline 24% to 55k units due to limited availability of BS6 models.
• PVs: Retail inquiries were intact but conversions were flat due to unavailability of BS4 variants and buyers postponing purchase of BS6 variants. Discounts moderated MoM. Most dealers pointed toward very low BS4 inventory (<10 days) and build-up of BS6 inventory going ahead. Volumes are expected to decline ~8% for MSIL and ~10% YoY for M&M UVs (incl. pick-ups). TTMT's PV volumes are expected to decline ~21% YoY.
• CVs: Although CV demand stabilized MoM, it fell sharply YoY in Jan'20. Lenders are turning cautious ahead of BS6 transition to avoid risk of financing unregistered BS4 vehicles. LCVs continue performing better than M&HCVs. Inventory levels stood at 15-20 days. We expect CV wholesales to decline ~12% for TTMT (-23% for M&HCVs) and ~32% YoY for AL (-44% for M&HCVs).