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MOSL: AUTOMOBILES-Weak retail momentum continues in 2Ws, PVs and CVs

AUTOMOBILES: Weak retail momentum continues in 2Ws, PVs and CVs; TVSL cuts moped prices (non-ES) by INR1,450/unit to compete with CT100

 

Our interaction with leading PV/2W channel partners indicates mixed demand momentum in key markets for Jan’19. Although, there has been a notable decline in inventories, especially in PVs (to 15-20 days v/s 40 days) and in CVs (15-20 days v/s 45-50 days), 2W inventory is still high (~40-45 days). We also note the weakening tractor demand in key agriculture states of Maharashtra, Madhya Pradesh (MP) and Rajasthan.

• PVs: PV demand trend is mixed across major markets. Key markets like Maharashtra, Gujarat and MP continue to see a decline in retail. In case of markets in North India like Rajasthan, growth is flat to positive. Comfortable inventory levels of 15-20 days leaves scope for better wholesales in Jan’19.     
• 2Ws: Post weak retail in 3QFY19, key channel partners are still indicating weak retail across key markets (average decline of 10-15%), except the North (flat to positive). Despite inventory correction, stock levels remain high at ~40-45 days. We expect BJAUT and TVSL wholesales to grow 3.1% and 12.9%, while HMCL dispatches are seen declining 14.3% YoY.
• CVs: CV demand too remains mixed across key regions. Southern markets are faring better in retail (on a low base) v/s the western and northern markets. We note significant inventory correction in CVs, especially for AL at ~15-20 days (v/s 40-45 days). However, discounting remains higher as OEMs chase market share. We expect CV wholesales for AL and TTMT to decline by 4.7% YoY and 3.7% YoY, respectively.

We prefer PVs over 2Ws and CVs due to their stronger volume growth and stable competitive environment. Our top picks in autos are MSIL and MSS among large caps, and AL, EXID and ENDU among midcaps.