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Month of strong sequential recovery
January being a seasonally strong month was expected to post strong sequential growths. On yoy basis, most of the companies reported single digit growths. Earlier the festive season was lackluster as interest rates were high, fuel costs and liquidity crunch led to a very jittery performance from the auto makers. Segmentally speaking, CVs in January, particularly M&HCVs posted recovery. In January 2018, regulations were implemented on trucks wherein the cabins were mandatorily supposed to build in ACs. Due to this, January sales were a bit muted last year. On low base on last year, Ashok Leyland reported growth, while Tata Motors reported a lower single digit fall. However, we see a strong mom recovery in sales as January sales were stronger on mom basis. On the PV front, sentimental negativity, lack of new launches, high interest rates and credit crunch resulted into weak yoy growth. In the 2W segment, higher insurance costs, higher inventory levels at dealers’ ends, weak monsoons and high base led to weak sales, particularly for Hero Motocorp. However, on the other hand, Bajaj Auto 2Ws sales improved as they are doling out higher discounts and top end segment of Pulsars is having good demand. Exports business is doing great on success in Africa, SE Asia and Latam. TVS however, with falling scooter demand and weak moped sales, reported a thin sales growth.
Going forward, we expect the broader segment to move up in coming months. PV demand is expected to move up on upcoming launches, while 2Ws are expected to witness a moderate growth in line with weak scooter demand, higher inventory levels, weak sentiments and competition. However, among two wheelers, we would prefer Hero Motocorp as it’s a proxy to the economy and rural growth. Bajaj Auto faces headwinds of lower profitability on the back of its focus on mass segment and weak 3W sales. CVs may have reported big falls in December, however, January has reported better sales growth. With 2019 being an election year, GOI’s emphasis on pushing the infra plans in the country may sustain CV demand. BS VI pre-buying shall initiate in Q1 of FY 20, which will further elongate the CV cycle. Possible implementation of scrappage policy may further escalate CV demand in long run. Within the CV space we like Ashok Leyland which is away from any global headwinds.
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