India auto, components sector faces soft retail sales, as competition from new SUVs, two-wheelers intensifies In June 2023, India’s automobile sector experienced a mixed performance, with certain segments exceeding expectations while others falling short. According to a research report by Kotak Institutional Equities, the tractor segment is estimated to have recorded a low single-digit increase in volumes on a year-on-year (yoy) basis, supported by higher sowing acreage and increased Minimum Support Prices (MSPs). However, the two-wheeler (2W) and commercial vehicle (CV) segments faced challenges, with domestic PV retail volumes also showing a muted growth of just 3% on a yoy basis in the first quarter of FY24. The domestic PV industry reported a modest 2% increase in both wholesale and retail volumes in June 2023, compared to the previous year. Maruti Suzuki, a leading player in the segment, witnessed a 2% yoy increase in total volumes, driven by a 6% yoy rise in domestic segment volumes, although offset by a substantial 17% yoy decline in exports. The SUV volumes declined by 6% on a month-on-month basis, partly attributed to semiconductor chip shortages. Maruti Suzuki’s market share stood at approximately 41% in June 2023, indicating a significant increase of 250 basis points compared to the previous year. The domestic 2W retail volumes demonstrated a 3% yoy improvement in the first quarter of FY24. However, on a month-on-month basis, the segment faced a sharp decline of around 29%. This was primarily attributed to a 57% drop in electric vehicle (EV) sales due to reduced FAME-II subsidy and seasonality impact with the onset of monsoon. HMCL, one of the leading 2W manufacturers, witnessed a 10% yoy decline in volumes in June 2023. On the other hand, TVS Motor reported a 3% yoy increase in volumes, driven by a robust 11% yoy growth in scooters and a steady 2% yoy growth in the motorcycle segment. Royal Enfield showed impressive performance, with volumes soaring by 26% yoy, primarily fueled by a substantial 34% yoy increase in domestic volumes. Bajaj Auto, however, experienced a 2% yoy decline in overall volumes in June 2023. The CV segment continued to face muted demand on a yoy basis, with volumes declining by a low single-digit percentage. Tata Motors’ CV volumes declined by 8% yoy, particularly impacted by significant declines in the I&LCV and SCV cargo & pickup segments. Ashok Leyland showed a more positive outlook, reporting a 5% yoy volume improvement driven by a 7% yoy increase in MHCV volumes and a 2% yoy improvement in LCV segment volumes in June 2023. Looking ahead, the Indian automobile and component sector is expected to face intensified competition as several new SUV/MUV launches are scheduled for July 2023. These launches, including the Honda Elevate, Kia Seltos facelift, Maruti Suzuki Invicto, and Hyundai Exter, are targeted at the SUV/MUV segment, which has been witnessing increased consumer preference. Additionally, the two-wheeler segment will witness new launches like the Hero-Harley Davidson X440 and Bajaj Auto-Triumph Speed 400 & Scrambler 400 X, primarily focusing on the >250 cc segment, where Royal Enfield currently holds over 90% of the market share.