Auto companies end FY23 on a strong note
3 min read . Updated: 04 Apr 2023, 12:56 AM IST
PremiumWhile March volume performance across two-wheelers is encouraging, it remains to be seen if the momentum is sustained.
The Nifty Auto index was the top gainer among NSE sectoral indices on Monday, rising 1.5%. This was largely driven by better-than-expected sales volume performance in March.
In the two-wheeler segment, Hero MotoCorp Ltd’s numbers surprised positively with volume beating expectations by a mile. It clocked 15% year-on-year (y-o-y) growth and nearly 32% month-on-month growth to 519,342 units. For perspective, analysts at Jefferies India had estimated Hero’s volumes at 412,000 units. The wedding season is a key factor that boosted volumes for Hero, which primarily operates in the entry-level segment. Unsurprisingly, shares of Hero rose by 3.5% on Monday, making it the top gainer in the Nifty Auto and Nifty50 indices.
Other two-wheeler manufacturers such as TVS Motor Co. Ltd and Eicher Motors Ltd’s Royal Enfield saw 5-7% y-o-y volume growth. Note, Bajaj Auto Ltd has not announced its volume numbers at the time of writing this article. On Monday, shares of these companies rose by 1-3%.
While March volume performance across two-wheelers is encouraging, it remains to be seen if the momentum is sustained. To be sure, a broad-based recovery is yet to play out in this segment. In FY23, volumes of Hero and TVS are higher y-o-y but they are down by nearly 32% and 7%, respectively, compared to pre-covid levels of FY19.
In the passenger vehicle segment, Maruti Suzuki India Ltd saw flattish volumes in March, while Tata Motors Ltd and Mahindra and Mahindra Ltd saw 4% and 30% y-o-y growth, respectively. Note, for the full year ended 31 March, passenger vehicle volumes of these companies are ahead of FY19 levels.
The passenger vehicle segment had kick started FY23 on a strong note, thanks to pent-up demand, though this is losing steam now. “Our interaction with channel partners indicated initial signs of moderation in passenger vehicles demand as there has been a drop in the level of enquiries and bookings during the month," said Motilal Oswal Financial Services analysts in a 2 April report. Moreover, price hikes owing to transition to real driving emission norms from 1 April may hurt demand.
Meanwhile, in anticipation of price hikes, commercial vehicles saw advanced purchases, lifting volumes in March. Also, the segment’s volumes were aided by year-end buying to claim depreciation benefits. For perspective, volumes at VE Commercial Vehicles Ltd, a joint venture between Eicher Motors and Volvo group, was at 11,906 units, 31% higher than Jefferies’ estimates.
To be sure, the lever of advanced purchase and year-end buying won’t be available in the coming months. Even so, commercial vehicles are currently in the middle of a cyclical upturn, said Varun Baxi, an analyst at Antique Stock Broking. “Demand is likely to peak after 3-4 quarters," he added. Further, the thrust on infrastructure by the government and increased e-commerce activity would keep the traction upbeat. In this backdrop, commercial vehicles are relatively better placed than other segments.
The tractor segment faces the risk from the possibility of 2023 being an El Niño year. Analysts expect growth for this vertical to slow in FY24 compared to the growth seen in FY23.
While most companies saw y-o-y and month-on-month growth across wholesale volumes in March, consistency is key for further meaningful triggers in shares. In FY23, the Nifty Auto index gained 16%.
Going ahead, market share gains are crucial to aid investor sentiments. Given commodity headwinds are largely behind, profit margins in the March quarter would be a key monitorable from a near-term perspective.