Auto Sector Fantastic End to a Tough Year

The Indian automobile industry made a stellar comeback in H2FY21 despite the adverse impact of the Covid-19 induced economic downturn as sales surged due to better-than-expected economic recovery and shift in consumer preference towards personal mobility. Wholesale volume momentum was strong in March-21, with all segments clocking MoM improvement. The MHCV segment saw the highest sequential growth, of 30%. YoY growth rate is losing significance, with Covid lockdowns entering the comparable base. 2W exports were strong for most players, but Bajaj saw a sharp MoM drop. On a full-year basis (FY21), Tractor was the strongest segment with 26-27% volume growth, despite impact of lockdown in initial months. The PV segment regained ground over the course of the year, ending with only a 2% decline in FY21. Many PV models have waiting periods, implying that FY21 volumes would have been much stronger, had it not been for production constraints. 2W volumes declined 13% in FY21. The worst-hit among major segments was MHCV, with a 32% fall.

PVs continue to clock strong volumes; 2W wholesales see improvement from Jan-Feb levels: 
PV retail demand has stayed strong even post the festive season, with a number of models still commanding waiting periods. As a result, PV wholesales have been fairly strong in recent months, largely covering up the deficit in Apr-Jul and ending full-FY21 with only a 2% drop. On the other hand, 2W retail demand has been weak in recent months. 2W retails, which clocked a single-digit decline in the festive season, deteriorated in Jan-Mar. Yet, wholesales saw some improvement in March compared with Jan-Feb.

MHCV sales further improve in March:
 
While truck sales have been moving from strength to strength, March saw good improvement in bus sales as well. The overall MHCV industry (trucks + buses) saw a 30% MoM jump in March and ended FY21 with volumes of 160k. The LCV industry, which saw weakness in Jan-Feb, has again picked up pace, with normalisation of production at M&M. Tractor industry volumes remained strong YoY and MoM, backed by good end-demand.

FY22E Outlook
As per the market experts, the MHCV segment will see the highest volume growth in FY22. While 3Ws would also see high growth, it is a relatively small segment. This should be followed by cars and 2Ws, with expectations of >20% growth in both segments. Tractor segment is likely to list the lowest growth in FY22, given the high base.

Stock Performance:
Nifty50 has rallied 78% in FY21 (April 2020- March 2021) whereas the Nifty Auto index has doubled i.e. generated 112% in the same period. Here, we have discussed auto sector stocks that have surpassed Nifty50 and Nifty Auto index performance or have given positive returns in FY21.