Thursday, September 28, 2023

Sales of PV and 2W disappointing in December, but stronger growth ahead, analysts say

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  • Sales of passenger cars and two-wheelers fell consecutively in December after a blockbuster in November.
  • Analysts expect the coming quarter to show strong growth as the fourth quarter is seasonally strong and auto companies have a slew of new launches planned.
  • Analysts say they remain positive about the auto industry’s outlook going forward, with a choice of resumes, PVs and two-wheelers, in that order.

Passenger car and two-wheeler companies ended 2022 with a dismal sales performance in December, with consecutive double-digit growth after a blockbuster in November.

However, analysts expect the coming quarter to show strong growth, both due to the fact that the fourth quarter is seasonally strong as people look for new vehicles at the start of a year. On top of that, new launches, refreshed models and a good monsoon season leading to potentially healthy rural demand are driving up expectations for a better good quarter going forward.

On the other hand, commercial vehicles and tractors drove car sales in December, with sequential double-digit growth across all segments on the back of a robust Rabi season and expectations of a healthy Kharif season.

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In December, companies in passenger cars and two-wheelers saw sales fall, while they saw growth in November. This is probably due to the shortage of chips that has hit the industry. Analysts are positive about the outlook for the automotive industry going forward, with cars, vans and two-wheelers being the choices in succession. Commercial vehicles and tractors are doing well and analysts expect the coming quarter to be strong. However, sales of two-wheelers are declining across the board, with exports particularly bad for one company.

Maruti Suzuki continues to struggle

Market leader Maruti Suzuki continued to struggle, with both domestic sales and exports falling 10% and 2% year-over-year, respectively. Total sales also fell on a sequential basis, falling 11.9% to 1,37,822 units in December 2022 from 1,50,134 units in November.

The company’s customers continue to shun small cars like the Alto, Baleno, Swift and others in the mini, compact and midsize segment. Total sales in these three segments fell from 86,869 in December 2021 to 68,421 units in December 2022.

“The shortage of electronic components had some impact on vehicle production, mainly in domestic models,” the company said in its exchange request.

Some of these issues are expected to abate, analysts hope LKP Effects. “We believe the fourth and final quarter of the year will see stronger growth in the PV segment as the chip shortage problem continues to ease and new launches on both ICE (internal combustion engine) and EV sides take place,” they said.

The brokerage said it remains positive about the auto industry’s outlook going forward, with choices of CVs, PVs and two-wheelers, in that order.

Commercial vehicles and tractors are already doing well, with strong growth in December on both an annual and sequential basis.

Two-wheeler sales are down across the board, but 2023 could sound positive

Two-wheeler sales were also disappointing this month, with exports shrinking dramatically between 23 and 39% among the top three two-wheeler companies Hero MotoCorp, TVS engine and Bay car.

The drop in exports was especially bad for Bajaj Auto, which reported a 39% drop in December. It relies much more heavily on exports than both Hero and MotoCorp TVS – exports accounted for almost half of total sales in December. for TVS, exports accounted for 33% of total sales, while Hero exported only 3% of its total sales.

According to LKP Securities analysts, this also shields Hero from the export weakness, meaning it is in the best position to benefit from the fourth quarter.

“We like Hero Motocorp because we believe it is almost free from the export weakness and is also led by strong monsoons shutting out a few eastern states, improving rural economy and upcoming electric vehicle launches,” the brokerage said in its report.

Analysts at ICICI Direct Research say they expect the premiumization trend in the 2W segment to continue. In addition, with the Auto Expo scheduled for February this year, car companies are expected to launch new vehicles, which should boost their sales volumes.


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