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M&M, Bajaj Auto: Nomura's preferred picks ahead of May sales data

May auto sales preview: Nomura analysts expect passenger vehicle (PV) wholesales to grow by 6 per cent on a year-on-year (Y-o-Y) basis to 355,000 units.

automobile
Tanmay Tiwary New Delhi
4 min read Last Updated : May 31 2024 | 11:09 AM IST
May Auto Sales Preview: Leading automobile players like M&M, Bajaj Auto, and Tata Motors among others will announce their May 2024 sales data, on June 1. 

Nomura analysts expect passenger vehicle (PV) wholesales to grow by 6 per cent on a year-on-year (Y-o-Y) basis to 355,000 units. Therefore, this surge, anlaysts believe, is expected to escalate inventory levels to over one month's worth, marking a crucial milestone post-COVID.

However, Nomura's insights hinted at a nuanced narrative beneath the surface. 

While wholesales might paint a rosy picture, the actual retail figures are likely to lag, signalling a potential slowdown in demand growth. This could prompt Original Equipment Manufacturers (OEMs) to recalibrate production strategies in the coming months, possibly accompanied by heightened advertising and promotional expenses.

In terms of specific manufacturers, Maruti Suzuki's domestic PV wholesales are projected to remain stagnant Y-o-Y, despite launching a new Swift model. The lack of a robust new model lineup and increased competition may pose market share risks for Maruti Suzuki in the upcoming fiscal year. 

“We estimate Maruti’s wholesale market share at ~40.6 per cent (flat M-o-M). We estimate retails to be lower, driving ~10k inventory addition. Maruti faces market share risk in FY25F as the new model cycle is not as strong as last year and there will be more new launches by competition,” Kapil Singh and Siddharta Bera, reserach analysts at Nomura said in a note.

That said, Mahindra & Mahindra's utility vehicle (UV) volumes are expected to see a 37 per cent Y-oY surge, driven by the enthusiastic response to the newly-launched XUV 3XO. However, M&M’s tractor volumes are expected to dip slightly by 3 per cent in May-24. 

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M&M is one of the preferred picks of the brokerage. It has assigned a 'Buy' rating to the stock with target price of Rs 2,818 (13 per cent upside)

Moving to the two-wheeler segment, a 12 per cent Y-o-Y growth in wholesales is on the cards, although there might be a slight moderation due to demand being pulled forward to April-24 owing to favourable marriage dates. Nonetheless, an optimistic monsoon outlook promises to buoy farm income and stimulate demand.

Bajaj Auto is predicted to post a 4 per cent Y-o-Y increase in volumes, primarily fuelled by a robust 15 per cent Y-o-Y rise in two-wheeler exports. “Going ahead, we expect Bajaj Auto to benefit from the ramp up of Pulsar 400z, a CNG bike in June-24, Triumph, and affordable EV Chetak, in our view,” Nomura said in a note with a 'Buy' rating and a target price of Rs 10,207 (14 per cent upside).

Further, TVS Motor is expected to see a 19 per cent Y-o-Y growth in the domestic market, and an 8 per cent growth in export volumes, while Hero MotoCorp's volumes are forecasted to remain flat Y-o-Y. “We believe Royal Enfield (RE) would be down -2 per cent Y-o-Y to ~76,000 units,” added Nomura.

In the medium and heavy commercial vehicle (MHCV) sector, a 12 per cent Y-o-Y growth in wholesales is anticipated, propelled by the favourable base of May-23 due to pre-buying in March-23. “We expect wholesale volumes of Ashok Leyland to be up +15 per cent Y-o-Y, while Tata Motors’ volumes should be up ~22 per cent Y-o-Y on a low base,” Nomura added.
 
Looking ahead to FY25, a more subdued 5 per cent year-on-year industry growth is envisaged for the MHCV sector.

That apart, the Japanese brokerage anticipates a 3 per cent Y-oY decrease in tractor wholesales. Looking ahead to FY25F, analysts project a 5 per cent industry growth. Favourable monsoon conditions, analysts believe, could potentially exceed these estimates, presenting an upside risk.

Amid these projections, analysts highlighted potential challenges on the horizon, including margin pressures stemming from rising commodity costs, particularly in the Q2FY25.

Additionally, the impact of ongoing elections, coupled with seasonal factors like heat and a weak marriage season, may have tempered sales in May.

Despite these headwinds, the electric vehicle (EV) segment continues to hold promise, with stable retail sales shares and notable market presence from players like Ola, TVS, and Bajaj Auto. 

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Topics :Auto salesBajaj Auto salesMaruti Suzuki AutoMaruti Suzuki EVMaruti Suzuki SwiftElectric vehicles salesPV salesCV salesNomuraBajaj Auto KTMPassenger vehicle market shareMaruti Suzuki stocksmahindra xuv300M&MM&M tractor businessTractor SalesTata Motors

First Published: May 31 2024 | 10:54 AM IST

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