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2W domestic wholesales increased 21% YoY, while exports grew 36.5% YoY (+26% MoM), albeit on a low base for both categories. CV volumes remained flat YoY, with MHCVs down 6% YoY and LCVs up 5% YoY.
Domestic demand has been healthy; however, strong export growth sequentially, despite challenges, surprised positively.
UVs continue to perform well on the back of stable demand and execution of order backlogs, while demand for entry-level cars remains subdued.
MHCV volumes declined ~6% YoY, while LCV volumes grew 5% YoY. TTMT/AL volumes declined 4%/6%, while VECV volumes grew 2% YoY.
We believe CV demand will remain subdued until elections and will see a gradual pickup thereafter. MM/ESC volumes declined 16%/17% YoY.As per M&M, “Southern and western states continue to face agri stress due to erratic and deficient monsoon. However, the Rabi crop outlook is very good, with the wheat crop likely to be a bumper crop.Continued government support through various rural schemes and enhanced institutional credit will further help boost tractor demand going forward.
As per ESC, “Tractor sales dipped this month due to the continuing impact of uneven monsoon coupled with insufficient rainfall and diminished reservoir levels, which impacted the Kharif output.
Anticipated improvements in the Rabi harvest and early signs of a normal monsoon next year are projected to enhance overall sentiments and drive an uptick in tractor sales in the next fiscal year.”
We are positive on the PV segment as it is expected to see better earnings growth, led by an improved mix.
The recovery in the domestic 2W segment should continue on the back of healthy demand and new launches focusing on premiumization.
While the 2w segment is expected to outperform other segments with high-single-digit volume growth, most of the growth seems already priced in the recent run-up of stocks.
CV demand is expected to pick up after elections as the government will continue to focus on infra-related activities. Tractor demand would remain challenging in the near term.
Here is a list of 2 stocks from auto space that could give 19-21% return in the next 12 months:
Happy Forging: Buy| Target Rs 1125| LTP Rs 927| Upside 21%
HFL is the fourth-largest manufacturer of heavy forged components. It serves customers across segments like heavy commercial vehicles (contributing to 41% of revenues), farm equipment (32%), off-highway vehicles (14%), and industrials (13%).
It is well poised to grow in coming years, led by client acquisition, capacity expansion, product diversification, and emerging opportunities in industrials & exports.
We expect revenue/EBITDA/PAT CAGR of 21%/25%/30% over FY24-26E. ROE and ROCE are expected to expand to 20.1%/19.2% by FY26E from 18.6%/17.1% in FY24E.
Hero MotoCorp: Buy| Target Rs 5560| LTP Rs 4652| Upside 19%
Hero MotoCorp is a pure play in the domestic 2W industry, with a stronghold in the 100cc motorcycle seg. New product launches in growing 125cc & premium seg. should augur well for Hero.
Expansion of Hero 2.0 stores is underway with a target of 400 stores by the end of 4QFY24. Recovery in demand, new product launches, stable RM prices & cost savings should drive ~24% earnings CAGR over FY23-25E
(The author is Head – Retail Research, Motilal Oswal Financial Services Limited)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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