A spring in the step for commercial vehicles in September

A spring in the step for CVs in Sep
A spring in the step for CVs in Sep


For CVs, the second half of FY24 could prove to be better than the first half. For two-wheelers, investor focus is on the festive season.

September automobile volume numbers are out and the commercial vehicle (CV) segment is leading the pack. Key CV companies—Ashok Leyland Ltd, Tata Motors Ltd and VE Commercial Vehicles Ltd—reported year-on-year and month-on-month growth in their respective wholesale volumes. On the other hand, the performance of two-wheelers, tractors and passenger vehicles was mixed with some companies clocking growth and others recording a drop.

With this, the September quarter results (Q2FY24) for CV makers are likely to pan out better. Take Ashok Leyland’s Q2 volume. They are up 10% year-on-year and 21% sequentially to 49,846 units. Thus, operating leverage would play out and may aid the already-decent margin. Recall in Q1, Ashok Leyland clocked better-than-expected Ebitda margin of 10%, which was higher by as much as 560 basis points year-on-year despite only a 4% rise in volume. Ebitda is earnings before interest, taxes, depreciation and amortization, a key profitability measure. What is more, CVs are expected to continue with the same momentum thanks to factors such as the government’s thrust on infrastructure and strong replacement demand. This means the second half of FY24 (H2FY24) could prove to be better than the first half. For two-wheelers, investor focus is on the festive season. “According to our channel checks and dealers’ commentary, the upcoming festive season is expected to drive healthy demand for two-wheelers. But if this does not fructify, it would be a dampener for the two-wheeler segment," said Himanshu Singh, an analyst at Prabhudas Lilladher. But after the festive push to sales, whether the general demand recovers remains to be seen.


Graphic: Mint
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Graphic: Mint

Competition is heating up for two-wheelers, especially in the premium category. Recently, Bajaj and Hero launched premium vehicles in collaboration with Triumph Motorcycles and Harley Davidson, respectively. Eicher’s Royal Enfield is already feeling the heat. “We note that Royal Enfield’s registration growth of 8% y-o-y in September 2023 (versus 22% for the industry) is the slowest in our two-wheeler coverage universe and its market share could face more risks as competition intensifies," said analysts at Nomura Financial Advisory and Securities (India) in a report on 3 October. In September, exports were also subdued. The upshot: after clocking growth for eight straight months, Royal Enfield’s volume fell by 4% year-on-year in September to 78,580 units. Month-on-month, volume growth was just 1.3% versus 9-17% for the Bajaj Auto Ltd, TVS Motor Co. Ltd and Hero MotoCorp Ltd pack. Small wonder, Eicher’s shares fell by almost 3% on Monday.

Coming to passenger vehicles, the demand for SUVs is on a strong footing. Helped by new launches such as Jimny, Fronx and Grand Vitara, Maruti Suzuki India Ltd’s volume share of utility vehicles in its domestic passenger vehicle segment was 39% in September, which is close to the peak. However, Maruti’s shares fell on Monday as overall volumes missed expectations. While semiconductor woes have eased, some are cautious. Mahindra & Mahindra Ltd (M&M) is keeping a close eye on semiconductor availability. Meanwhile, the outlook is blurry for tractors given the deficit and uneven distribution of rainfall. M&M and Escorts Kubota Ltd’s tractor volume fell y-o-y by roughly 11% each in September. Overall, comparatively lower commodity costs are a tailwind for auto companies’ margins. But much depends on factors such as mix and advertisement spends. For now, investors in auto stocks seem to be factoring the brighter picture to a good extent. From their respective 52-week highs, Eicher’s shares are down by 14% while those of others are down by up to 8%.

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