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May 31, 2024

Nomura’s Top Picks: M&M and Bajaj Auto in Focus Ahead of May Sales Data

As leading automobile manufacturers like M&M, Bajaj Auto, and Tata Motors prepare to announce their May 2024 sales data on June 1, Nomura analysts have provided an insightful preview into the expected trends and outcomes.

Passenger Vehicles: Moderate Growth Amid Inventory Buildup

Nomura projects a 6% year-on-year (Y-o-Y) increase in passenger vehicle (PV) wholesales, reaching 355,000 units in May 2024. This growth is anticipated to push inventory levels to over one month’s worth, marking a significant post-COVID milestone. However, despite the promising wholesale figures, the actual retail sales might lag, suggesting a potential slowdown in demand growth. This discrepancy could prompt Original Equipment Manufacturers (OEMs) to adjust their production strategies and increase marketing efforts in the upcoming months.

Maruti Suzuki: Stagnant Sales and Market Share Risks

Maruti Suzuki’s domestic PV wholesales are expected to remain flat on a Y-o-Y basis, despite the launch of a new Swift model. The lack of a strong new model lineup and intensified competition pose significant market share risks for Maruti Suzuki in the next fiscal year. Nomura analysts estimate Maruti’s wholesale market share to be around 40.6%, with retail sales lagging, leading to an inventory addition of approximately 10,000 units.

Mahindra & Mahindra: Strong Utility Vehicle Sales, Weak Tractor Performance

Mahindra & Mahindra (M&M) is projected to see a robust 37% Y-o-Y increase in utility vehicle (UV) volumes, driven by the successful launch of the XUV 3XO. However, the company’s tractor volumes are expected to dip by 3% in May 2024. Despite this, M&M remains one of Nomura’s preferred picks, with a ‘Buy’ rating and a target price of Rs 2,818, suggesting a 13% upside.

Two-Wheeler Segment: Mixed Performance Across Manufacturers

The two-wheeler segment is expected to grow by 12% Y-o-Y in wholesales, though there might be a slight moderation due to demand being pulled forward to April 2024 due to favorable marriage dates. An optimistic monsoon outlook is expected to boost farm income and stimulate demand.

Bajaj Auto is anticipated to report a 4% Y-o-Y increase in volumes, bolstered by a 15% Y-o-Y rise in two-wheeler exports. Nomura highlights Bajaj Auto’s potential gains from the upcoming launches of the Pulsar 400z, a CNG bike, the Triumph, and the affordable EV Chetak, assigning a ‘Buy’ rating with a target price of Rs 10,207, implying a 14% upside.

TVS Motor is projected to see a 19% Y-o-Y growth in the domestic market and an 8% growth in export volumes. In contrast, Hero MotoCorp’s volumes are expected to remain flat Y-o-Y. Meanwhile, Royal Enfield is forecasted to see a slight decline of 2% Y-o-Y, with sales around 76,000 units.

Commercial Vehicles: Solid Growth Expected

In the medium and heavy commercial vehicle (MHCV) sector, a 12% Y-o-Y growth in wholesales is expected, driven by a favorable base effect from May 2023 due to pre-buying in March 2023. Ashok Leyland’s wholesale volumes are projected to increase by 15% Y-o-Y, while Tata Motors is expected to see a 22% Y-o-Y rise on a low base.

Looking ahead to FY25, a more modest 5% Y-o-Y growth is projected for the MHCV sector. Despite this, favorable monsoon conditions could potentially exceed these growth estimates, presenting an upside risk.

Tractor Sales: A Mixed Outlook

The tractor segment is expected to see a 3% Y-o-Y decline in wholesales. However, looking forward to FY25, analysts project a 5% industry growth, with favorable monsoon conditions possibly driving higher-than-expected performance.

As the automobile industry continues to navigate post-pandemic recovery, Nomura’s insights provide a comprehensive overview of expected trends and potential market movements. Investors and industry stakeholders will be keenly watching the sales data announcements on June 1 for further indications of market direction.

Read more Business related news on R9 News
Jhumpa Lahiri

Jhumpa Lahiri

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