February auto sales preview: Car demand to remain skewed towards SUVs
According to the report, total sale volumes of the PV segment are expected to grow around 10 percent y-o-y, Medium & Heavy Commercial Vehicles (MHCVs) to rise 25 percent and two-wheelers to grow 14 percent in the current month.
Automobile companies in India are expected to report strong sales figures in February 2023, according to a Nomura report which expects car, or passenger vehicle (PV), demand to remain skewed towards sports utility vehicles (SUVs) and premium variants. According to the report, total car sales are expected to grow around 10 percent year-on-year, medium and heavy commercial vehicles (MHCVs) would rise 25 percent and two-wheelers would grow 14 percent in February.
Car sales
The report expects car wholesales to rise to 333,000 units but retail sales are likely to be lower, leading to an inventory addition of around 30,000 units.
The rating agency expects Maruti Suzuki’s domestic car wholesales to be up 5 percent y-o-y in February 2023, implying a market share of around 42 percent. Further improvement in market share to 43-44 percent in FY24, led by likely launches of Jimny and Fronx SUVs. Mahindra’s total volumes are likely to grow 16 percent y-o-y, to 32,000 units aided by a strong model cycle and healthy order book.
Nomura also estimates luxury car sales to decline 20 percent YoY in February.
Two-wheeler sales
Overall two-wheeler demand is expected to be similar to that of January 2023. Volumes are likely to be up 14 percent y-o-y. Nomura claims two-wheeler demand could improve with lower inflation and better crop harvest.
But there is the risk of poor monsoons and El Nino hitting the rural market. This could impact entry segment cars, two-wheelers and tractors demand, affecting growth for companies like Maruti Suzuki, Hero MotoCorp and Mahindra the most.
Nomura expects TVS to do well in terms of domestic sales and grow 25 percent y-o-y, leading to a 1 percent y-o-y decline in overall volumes. Hero Motocorp is likely to be up 8 percent y-o-y. Bajaj Auto is likely to decline by 10 percent y-o-y on weaker exports. Royal Enfield volumes are likely to be up 18 percent y-o-y, benefiting from continued demand for its Hunter 350.
Jay Kale, Vice-President of institutional equity research at Elara Capital, told CNBC-TV18 in an interaction that exports would continue to remain weak. “Bajaj Auto had guided during their (earnings) concall that exports will continue to remain weak. There are pressures in the market and that could go up till May-June,” he said.
Electric two-wheeler retail sales are expected to be 5 percent of total two-wheeler retail sales, as per Nomura. As per the report, Ola Electric would likely remain the leader with retail sales of around 15,000 in February.
Commercial vehicles (CV) sales
Dealer surveys indicate there is pre-buying for CVs as prices are likely to rise by 3-4 percent from April post the implementation of real driving emissions norms. This could lead to a 15-20 percent growth for CV makers in February.
MHCV wholesale volumes are likely to grow 25 percent y-o-y in February. Industry demand seems to be on track and is expected to rise 10 percent y-o-y in FY24. For February 2023, Ashok Leyland is likely to gain market share in MHCVs. Ashok Leyland and Tata Motors are both expected to grow around 34 percent and 17 percent y-o-y, respectively.
For tractors, volume growth is likely to be around 20 percent y-o-y in February 2023.
Key trends to watch would be:
1) Pre-buying for CVs: Nomura dealer surveys have indicated that some pre-buying for CVs as prices are likely to rise to 4 percent from April 2023, post the implementation of real driving emissions (RDE) norms.
2) Waiting periods to be reduced: There has been a reduction in the waiting period of key models from the major Indian automakers, suggesting a slower demand outlook. Luxury car sales also declined around 20 percent y-o-y.
3) Diesel car price hikes lower than expected: Price hikes for diesel cars post-RDE were lower than expected. While there are still expectations of further price hikes from April 2023, the research agency expects the likelihood to be low as any further hikes may impact demand.
4) Risks to monsoon from El Nino: Rural incomes will be impacted in case of weaker monsoons and therefore impact entry segment cars, two-wheelers and tractors demand would also be impacted. This could result in Maruti Suzuki, Hero MotoCorp and Mahindra and Mahindra suffering the most.
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