
According to the Federation of Automobile Dealers Associations (FADA), festivals like Holi, Ugadi, Gudi Padwa and Navratri are likely to push auto sales in March 2023.
However, Motilal Oswal expects some moderation in auto sales demand due to erratic rainfall during the month, especially in key Northern and central regions and lower enquiries during the ongoing festive season. Despite this, retails for both medium and heavy commercial vehicles (MHCV) and two-wheelers are expected to grow while Passenger vehicles volume growth is expected to remain flattish.
The brokerage firm prefers commercial vehicles (CVs) over other segments given strong
demand and a stable competitive environment. It prefers companies with higher visibility in terms of demand recovery, a strong competitive positioning, encouraging margin drivers, and a strong balance sheet. Ashok Leyland and Tata Motors are our top original equipment manufacturer (OEM) picks. Among auto component stocks, it prefers Motherson Sumi and Bharat Forge.
It believes that March 2023 retail growth for passenger vehicles is expected to be flattish on a year-on-year basis (y-o-y) with 0-2% YoY growth. There has been some moderation in enquiries led by muted demand during ongoing festivals and persistent weakness in the rural market.
Moreover, rising interest rates have further hampered bookings for low-end models. Although
the inventory level has increased to 25-30 days in Mar’23 v/s 20-25 days till Feb end, it has now come back to the normal level after three years.
Tractor sales are expected to decline 3-5% on a year-on-year basis, largely led by the
anticipation of lower output for Rabi crops due to unseasonal rains and low yields for key crops. Due to unseasonal rains, demand began to deteriorate in the second half of the month across the northern and central states, including Punjab, MP, UP and Maharashtra.
The channel checks suggest MHCV retails to grow 10-12% YoY in Mar’23 led by healthy fleet utilization driven by infra-led demand and pre-buying before the OBD-2 transition. However, a broad-based recovery has not yet materialized as replacement demand is yet to reflect completely. It expects dispatches for Tata Motors to remain flat YoY, while the same should grow 4% YoY for Ashok Leyland.
For two-wheelers, the demand is expected to grow 4-6% YoY in Mar’23 since urban demand is steady and inquiries have improved in certain states during the ongoing Navratri season. However, overall sales are still down by 15-17% v/s the pre-Covid level as rural demand remains weak. Enquiry levels during the key festivals (Gudi Padwa and Ugadi) varied greatly among states.