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MOSL: AUTOMOBILES-No signs of recovery yet; Inventory levels still high; Jun’19 — the last month of high base for PVs

AUTOMOBILES: No signs of recovery yet; Inventory levels still high; Jun’19 — the last month of high base for PVs

 

Our interaction with leading PV/2W/CV channel partners still indicates no signs of demand recovery. Inquiries to sales at the retail level remained tepid, while continued production since Mar’19 is yet to help in normalizing inventory levels. 

• 2Ws: Despite production cuts, the weak demand led to an increase in inventory levels in Jun’19. We expect BJAUT wholesales to grow 2.5% (6% for 2W volumes), while TVSL volumes should remain flat. On the other hand, our estimates indicate HMCL wholesales to decline ~9% YoY and RE dispatches to decline ~12% YoY to 65.5k units.
• PVs: The demand trend is tepid across major markets with inquiries to sales conversion for existing models remaining weak. The average inventory levels are stable for MSIL at 25-30 days, while it is higher for MM/TTMT at 35-40 days. MSIL’s volumes are expected to decline ~14%, while MM’s UV volume should decline ~4.5%. TTMT’s PV volumes are seen declining ~36%.
• CVs: Retails were weak across regions as demand from all major end user segments was tepid. This resulted in average discount per unit remaining high. We expect CV wholesales for AL to decline 5% YoY and for TTMT to decrease by 26% YoY due to continued inventory correction.

We prefer 4Ws over 2Ws and CVs due to expected faster recovery, least impact of BS6 and less competitive environment. Our top picks in autos are MSIL and MSS among large caps, and AL, EXID and ENDU among midcaps.