Auto sales preview: Heatwaves, Lok Sabha elections likely to dent retail automobile demand in May

Auto sales: Shares of automobile companies such as Maruti Suzuki, Tata Motors, Mahindra & Mahindra (M&M), Hero MotoCorp, Bajaj Auto and others will remain on investors’ radar next week as these companies will release their monthly sales data over the weekend. However, the auto sales for the month of May are likely to be muted across categories.

Retail demand for automobiles across major categories witnessed a slowdown in May, hurt by heat waves, weak foot traffic, ongoing elections, and the absence of marriage season dates. Auto demand has also been affected due to unseasonal rains in key states like Maharashtra, which has dampened agricultural sentiments.

While two-wheeler retail growth is expected to be 2-4% year-on-year (YoY) for the month, Passenger Vehicle (PV) segment volume is expected to decline 7-9% YoY despite decent response to the newly launched M&M’s XUV 3XO and Maruti Suzuki Swift, according to estimates by brokerage firm Motilal Oswal Financial Services.

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MHCVs and LCVs are also expected to see a single-digit decline in sales, mainly on account of delay in tenders due to elections. Tractors sales may decline by 5% YoY.

Here are key expectations from May auto sales data from across categories:

Two-wheelers

Two-wheeler retail sales are expected to see a 2-4% YoY growth, with Southern regions growing better than the Northern regions. Entry-level demand has remained flat YoY.

The absence of marriage season sales in May, combined with the impact of elections, has led to an increase in inventory. Inventory levels are currently at 45-50 days for Hero MotoCorp and 35-40 days for TVS Motor Company and Bajaj Auto.

“However, dealers are hopeful that this inventory will normalize, as marriage season dates fall in July this year, which could boost retail sales in June. We expect dispatches to grow by 6% each for Bajaj Auto, TVS Motor Company and Royal Enfield, while Hero MotoCorp is anticipated to decline 6% YoY,” Motilal Oswal said.

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Passenger Vehicles

Passenger Vehicles in May 2024 are expected to decline 7-9% YoY with one of the reasons being lower footfalls due to heatwaves. Footfalls are expected to have declined by 15% MoM, as per the brokerage estimates.

Customer preference for various variants remain mixed with the entry-level spec successful in garnering new types of customers, mostly upgrading from a small car or a first-time buyer, it said.

The brokerage firm expects dispatches for Maruti Suzuki India (including LCVs) to decline 1% YoY, while it should grow by 14% for M&M (including pickups). Tata Motors’ PV volumes are likely to remain flattish YoY.

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Commercial Vehicles

MHCV/LCV retail volumes are expected to decline 8-10% and 2-3% YoY.

There is an underlying weakness in the segments like iron-ore extraction, cement sector, infra, etc., leading to slower growth in the tipper segment. This weakness in the demand is mainly due to ongoing elections and dealers expect to see normalcy by 2HFY25. Inventory stands at around 4-6 weeks for CVs.

Analysts at Motilal Oswal expect dispatches for Tata Motors and Ashok Leyland to remain flat YoY, while Volvo Eicher Commercial Vehicles (VECV) is anticipated to decline 9% YoY.

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Tractors

Tractors sales in May 2024 are estimated to decline 5% YoY, led by weak agri sentiments in key regions. The weakness in demand is attributable to lower footfalls, due to unseasonal rains and sustained weakness in agri segments.

However, the broking house noted some recovery in demand for non-agri segments over a low base of the last few quarters. The average inventory level across most of the OEMs has increased by ~2 weeks. It expects tractor dispatches for M&M to decline 4% YoY, while Escorts Kubota to report a decline of ~5% YoY.

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“It is now an established fact that the majority of easy gains in Auto OEM stocks are now behind us, as we have witnessed significant volume growth across segments over the last two years, and input costs also appear to have bottomed out. Hence, one will have to make selective micro strategies to outperform from hereon,” Motilal Oswal said.

Its top picks in Auto OEMs are Maruti Suzuki and Ashok Leyland. Among Auto Ancillaries, its top picks include Craftsman Automation, Motherson Sumi Wiring India and Happy Forgings.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.