Automobiles August dispatches are sign of early festive kick-off

Workers assemble Hero Ignitor motorcycles on the assembly line of the Hero MotorCorp Ltd. manufacturing facility in Gurgaon (Image:  Prashanth Vishwanathan/Bloomberg)

In the two-wheeler (2W) segment, the festive season has kick-started across a few regions. Hero MotoCorp (Hero) reported sales of ~584k units in August, up 8% y-o-y. Domestic motorcycles outperformed scooter as it grew ~9% vis-à-vis 11% decline for the latter. The recent launch of Hero Xtreme 160R has led to an increase in market share in the premium segment.

TVS Motors (TVSM) reported marginal 1% y-o-y decline to ~287k units (up 14% m-o-m). Domestic sales fell 1% y-o-y to ~219k units while exports were down 2% y-o-y to ~68k units. On segmental level, 2W sales were flat at ~277k units and 3W sales shrank 30% y-o-y to ~10.2k units.

Royal Enfield reported 5% y-o-y decline to 52.6k units due to improvement in discretionary demand. Sales in 350cc segment grew 49% y-o-y to ~46k units while above 350cc segment continued to lag, down 54% to 3.8k units as exports fell 38% y-o-y. Key monitorable for company remains upcoming product launch in the festive season.
Passenger vehicles (PVs): Demand growth optically better due to low base

Maruti Suzuki’s (Maruti’s) demand revived at 17% growth y-o-y to ~124k units with mini-vehicle segment posting strong growth of 95% y-o-y to ~19.7k units (aided by low base effect), while compact segment grew 14% y-o-y to ~62k units. UV segment volumes grew 13% y-o-y at ~21k units (no clear sign of downtrading yet as UV growth continues to remain strong). Exports dropped 15% to ~8k units.

Hyundai’s domestic volumes grew 20% y-o-y to 45.8k units while exports declined 62% y-o-y to 6.8k units. The company is witnessing strong sales from the recently launched second-generation Creta, Venue iMT and Aura models.

Mahindra & Mahindra’s volumes grew 8% y-o-y to ~54k units with PV segment declining 48% y-o-y to 244 units and UV segment growing 3% y-o-y to ~13.4k units. UV segment may have been impacted by production issues, and better performance in urban markets for OEMs like Hyundai, Kia and MG Motors.

As per media reports, Tata Motors saw highest sales since Mar’18 at ~18.6k units, up 154% y-o-y to become 3rd largest player for two straight months as incremental market share gains are driven by relatively better demand for models like Altroz and Nexon.

Our view

Aug’20 dispatches are a sign of early festive kick-off (Onam, Ganesh Chaturthi) and OEM expectations of strong festive demand; however, channel inventory is likely to rise to near normal levels in Sept’20 prior to second phase festive season in Oct’20. Thus, we expect wholesales to start tracking retail trends post Oct’20, and sustained production growth would be contingent on retail off-take. Another monitorable would be the evolution of retail/channel financing post lifting of moratorium.