2W and PV wholesales volume is expected to be healthy, led by inventory build-up to meet festive demand and gradually improving retails post GST implementation. Growth in the CV segment will be largely led by LCVs. Our interaction with mass market 2W channel partners points toward a gradual recovery in retails from the second half of July. Factors such as good monsoon and increase in MSPs have lifted sentiment in rural/semi-urban areas. Pre-festive demand is evident in states like Maharashtra and Gujarat.
Key highlights:
- MSIL's domestic dispatches growth is expected to come in at 11% YoY. Demand forBaleno, Brezza and New Dzire continues to remain robust as these models enjoy ahealthy waiting period of 3-4 months. Within the domestic portfolio, CIAZ sales areexpected to be weak due to GST impact on hybrid cars (forms ~60% of CIAZ sales).
- Tata Motors PV segment is expected to decline 5% YoY, while the CV segment is likelyto continue its downtrend with a decline of 3% YoY, led by a 12% fall in HCVs.
- MM’s volumes are expected to increase by 7% YoY, as tractor volumes are likely toincrease by 25% YoY and UV volumes by 2.3% YoY. However, 3W sales are expected todecline 27% YoY.
- In the 2W segment (barring BJAUT), HMCL and TVSL wholesales are expected toincrease at a healthy 20% and 15%, respectively, led by improving retails in key statesand inventory build-up to meet festive demand. BJAUT is likely to record a decline of2.3% YoY due to weak 3W and exports sales.
- We expect RE volumes to grow at 19.9% YoY to 64k units.
- CV manufacturers are expected to see a sharp recovery in wholesales, led by stronggrowth in LCV sales. We expect AL to outperform other CV manufacturers, with 9.6%YoY growth (LCVs +30% YoY, HCVs +3.9% YoY), while TTMT and VECV’s CV sales areexpected to decline by 3.2% and 2.7%, respectively.
- We prefer 4Ws over 2Ws and CVs due to stronger volume growth and a stablecompetitive environment. While we expect 2W volumes to benefit from rural recoveryin the near term, competitive intensity remains high in this segment witnessingchanging customer preferences. For CVs, we expect a gradual volume recovery from 2HFY18.
- Our top picks are Tata Motors, Maruti Suzuki and Amara Raja. We also consider MMas the best way to participate in rural market recovery