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MOSL: AUTOMOBILES-Jul’19 Wholesales-Disappointing, yet again!; BJAUT and MM in line

AUTOMOBILES: Jul’19 Wholesales: Disappointing, yet again!; BJAUT and MM in line, others miss subdued estimates

 

Jul’19 wholesales were disappointing across the board, even as OEMs continued with inventory reduction drive in a weak retail environment. While PV/CV volumes have plunged ~30%/~27%, 2W volumes declined 15% YoY (below est). Tractor volumes declined ~12% YoY (in-line). Key highlights from Jul’19 wholesale volumes (including exports):

• 2Ws - exports save the day, resulting in 15% YoY decline: 2W volumes declined 15% YoY, as weak domestic sales (-19%) were diluted by ~5% growth in exports. HMCL's overall volume declined by 21% YoY. Domestic volumes for BJAUT declined ~15% and for TVS decline was ~16%.
• PVs - high base, high inventory leads to ~30% YoY decline: PV volumes remained weak for the 13th consecutive month with no signs of recovery from the impact of negative sentiments. Increasing competitive launches impacted M&M's (UV) wholesales, which declined ~14%. MSIL dispatches declined 33.5% YoY as it continued to calibrate production with retail to control inventory.
• CVs - weak infra and economic activity, liquidity impacts demand: CV wholesales were below estimates for both AL and VECV. M&HCV volume declined 36.5% YoY while LCV volumes declined 5% YoY. AL (28% decline) and VECV (32% decline) disappointed.
• Tractors - decline ~12%: Tractor volumes declined 12% YoY, led by high base and muted farm sentiments. Escorts has not yet reported volumes for the month, but we expect it to outperform M&M's volumes.
• Valuation & view: We prefer 4Ws over 2Ws and CVs due to (a) limited impact of BS6, (b) stable competitive environment, and (c) lesser threat of EVs. Our top picks in autos are MSIL and MSS among large caps and AL & ENDU among midcaps.