The total retail sales of vehicles witnessed 11 per cent yoy growth during September 2022 as better supplies from manufacturers enabled dealers to ramp up customer deliveries amid the ongoing festive period, as per the Federation of Automobile Dealers Associations (FADA).

The festival season (Navratras and Diwali) is a crucial period for 2W retails. Festivals such as Ganapati and Onam had an encouraging start

Dealer inventory stands at 50-60 days as per our channel checks. Retail demand continues to remain strong and easing chip shortages has led to a decline in waiting periods.

Dealers anticipated October to be the best festive in a decade for the passenger vehicle (PV) segment as it is expected to have even higher sales during the month.

October would see auto retail on high grounds with 24 days of festivities out of the total 31 days, FADA said in its Vehicle Retail Data report for September 2022.

With supply-side issues easing, the festive season would be critical for 2Ws and Tractors. Volumes in 2QFY23 recovered across segments on a low base of 2QFY22.

The demand momentum was sustained in PVs and CVs, while 2Ws and Tractors saw some signs of a recovery. Wholesale volumes for PVs grew 25% YoY and 5% QoQ, CVs grew 37% YoY and 7% QoQ, 2Ws grew 5% YoY and 12.5% ​​QoQ, and Tractors grew 7% YoY (but fell 15% QoQ).

Exports overall have been under pressure for OEMs as well as Auto Component suppliers due to various frictions in the global trade.

Price hikes and operating leverage is likely to drive margin improvement, despite the residual impact of an increase in cost inflation.

For the second quarter in a row, we expect EBITDA margin to improve by 310bp YoY and 130bp QoQ for MOFSL’s Auto OEM Universe. 2QFY23 will see an increase in commodity costs on account of the lag impact of steel price and crude derivatives.

While demand recovery is expected to sustain on a low base, commodity prices have started to moderate, with benefits expected to accrue from 3QFY23.

We expect a 12%/22%/7% volume CAGR (FY22-24) for 2Ws/PVs/Tractors. For 3Ws/LCVs/M&HCVs, we expect a volume CAGR of 14%/19%/26% over FY22-24.

Easing semiconductor supplies boost PV retails and CVs continue to grow on increasing economic activities & high-capacity utilization.

The 2W segment demand hinges on the festive season, which seems to have received an encouraging start.

We prefer 4Ws over 2Ws, on the back of strong demand and offer a stable competitive environment. We expect the CV cycle to maintain its momentum.

We prefer companies with: a) higher visibility in terms of demand recovery, b) a strong competitive positioning, c) margin drivers, and d) balance sheet strength.

Bharat Forge: Buy| Target Rs 830| LTP Rs 764| Upside 8%
All businesses are seeing a sharp cyclical recovery. This, coupled with its focus on creating new revenue pools in Aerospace, Defense, and e-Mobility, can lead to a de-risking of the business.

The strong growth is being driven by continued traction in the domestic business and higher steel prices. We estimate a consolidated revenue/EBITDA/PAT CAGR of 10%/14.5%/22% over FY22-25.

: Buy| Target Rs 11,250| LTP Rs 8685| Upside 29%

We expect a recovery in both market share and margin in 2HFY23, led by an improvement in supplies and mix, a favorable product lifecycle, RM and forex benefits, and operating leverage.

With an expansion and refreshment of its product portfolio and offerings of new-age features and fuel-efficient technologies, it is looking to regain its market share of 50% in the near future.

(The author is Head – Retail Research, . Recommendations, suggestions, views and opinions are his own. These do not represent the views of Economic Times)


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