July auto sales preview: Analysts see 2W sales picking up; check top bets

July auto sales preview: Analysts remain optimistic about India's auto sector and expect double-digit growth in two-wheeler (2W) wholesale volumes in July 2024. This growth is likely to be supported by good retail sales, inventory build-up, and a favourable base, with strong growth from Honda and Bajaj Auto. Market experts bet big on Hero MotoCorp, Mahindra & Mahindra, Bajaj Auto, Tata Motors, Ashok Leyland, and Sona BLW Precision among the auto sector.

Analysts at Anand Rathi expect passenger vehicle (PV) volumes to have grown, driven by better retail sales and inventory build-up.

On the other hand, Nomura expects passenger vehicle wholesales to be at 344,000 units, down 2 per cent year-on-year. They estimate industry retails to be up in low single digits, supported by higher discounts. Inventory levels remain elevated at 40 days (normal: 30 days). "Dealer surveys indicate that demand trends remain weak. We expect higher A&P spends to continue as OEMs manage inventory and scale back production. However, dealers are hopeful that a strong festive season can lead to inventory normalisation," said the brokerage report. Nomura maintains its FY25F PV industry growth estimate of 4 per cent year-on-year.

According to Nomura, two-wheeler industry wholesales are expected to be up 12 per cent year-on-year. Retail sales are also growing in double digits. The progress of the monsoon until July 28 has been good, with rainfall at 3 per cent above normal levels and well spread across regions, which is positive for rural demand.

Meanwhile, the Anand Rathi Research Team expects good volumes across auto segments, with 2Ws outpacing others. "We have raised M&H CV growth to high single digits (earlier mid-single digits), led by robust bus demand (a 14 per cent CAGR), continuing replacement demand, infra/economic activity, and favourable bases (Q1/Q4 FY24)," said the brokerage in its report.

About two-wheeler wholesale volumes in July 2024, Anand Rathi expects Bajaj's 2W volumes to have risen by 20 per cent, Hero MotoCorp’s by 15 per cent, and TVS’s by 12 per cent; meanwhile, Royal Enfield’s volumes are expected to have been flat.

For tractors, Nomura expects wholesales to be up 3 per cent year-on-year and a 5 per cent industry growth in FY25F. Meanwhile, Anand Rathi expects small growth in tractor volumes, with M&M’s tractor volumes likely to have risen by 3 per cent and Escorts' by 1 per cent.

Stocks for action - Nomura

• Mahindra & Mahindra - Buy - Price Target Rs 3,374, CMP Rs 3,374
• Bajaj Auto - Buy - Price Target Rs 10,926, CMP Rs 9,558
• Tata Motors - Buy - Price Target Rs 1,294, CMP Rs 1,124
• Sona BLW Precision - Buy - Price Target Rs 4,798, CMP Rs 685
• Eicher Motors - Reduce - Price Target Rs 4,119, CMP Rs 4,962