Tractors & commercial vehicles drive auto sales in February but El Niño threat looms large

Tractors & commercial vehicles drive auto sales in February but El Niño threat looms large
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  • Passenger vehicle sales continued to be steady in what is otherwise a weak month seasonally.
  • Overall, while analysts expect broad-based growth going forward, El Niño could derail the momentum, especially in the tractors and commercial vehicles segment.
  • On the whole, though, the strength in the domestic market was somewhat offset by weak exports, with Bajaj Auto bearing the brunt of the weakness in foreign markets.
Tractors and commercial vehicles drove the sales of the Indian auto sector in February, even as passenger vehicle (PV) sales continued to remain resilient in what is otherwise a seasonally weak month for auto companies.

Thanks to strong rabi sowing, healthy crop prices and expectations of price hikes by tractor makers, M&M and Escorts reported a year-on-year growth of 26% and 28% respectively, beating analyst estimates. The transition to real driving emissions (RDE) norms by April this year is expected to result in a 3-4% increase in prices. “Pre-buying may continue in March 2023 as prices are likely to rise by 3-4% from April 2023 post the implementation of RDE norms,” said a report by Nomura Financial Advisory and Securities (India).

On the whole, though, the strength in the domestic market was somewhat offset by weak exports, with Bajaj Auto being the biggest victim of the weakness in foreign markets.

Tractors and commercial vehicles ride on strong, but El Niño could derail momentum

Tractor and commercial vehicle makers delivered robust growth in the range of 24-28%, as companies benefited from higher infrastructure spending, expectations of strong rabi output and improving rural sentiments.


“The tractor space continues to surprise positively and reported healthy high-double-digit YoY growth in a seasonally weak month amid positive farm income and rural sentiments,” said a report by ICICI Direct.

With that said, the threat of El Niño is looming large and a weak rabi or kharif season could worsen rural demand recovery, derailing the momentum of tractor companies. El Niño is a weather phenomenon originating in the Pacific Ocean that causes hotter summers and weaker monsoons. For now, analysts remain watchful of the impact of El Niño as it can adversely affect farm output.

Meanwhile, commercial vehicle makers have benefitted from higher infrastructure spending and improvement in freight movement across the country, and the future looks bright for them, according to analysts.

“With robust capex allocation in Union Budget 2023-24 at ₹10 lakh crore, CV volumes are expected to grow double digit over FY23E-25E,” the ICICI Direct report added.

CompanySales (Feb-23)YoY changeMoM change
M&M (Tractors)25,79126.2%-10.8%
Ashok Leyland18,57126.7%8%
VE Commercial Vehicles7,28924.5%1.5%

Source: Company reports

M&M leads growth in passenger vehicle segment

Passenger vehicle sales remained steady in February, building on the momentum seen in January.

While Maruti Suzuki’s mini and compact, and vans segments witnessed growth, a significant decline in exports subdued its overall numbers during February. The company also noted in an exchange filing that chip shortages affected its production during the month, with the impact in March expected to be “more than that in the recent months.”

However, analysts at LKP Securities said they expect new launches in both the internal combustion engine (ICE) and electric vehicle (EV) categories to boost the overall sales in the passenger vehicle segment in Q4.

“While PV OEMs (original equipment manufacturers) have a solid order book, strong consumer sentiment and economic activity are key drivers for incremental demand,” said a report by BNP Paribas, noting that Maruti Suzuki and M&M are its top picks in this segment.

CompanySales (Feb-23)YoY changeMoM change
Maruti Suzuki1,72,3215.0%-0.1%
Tata Motors79,7052.5%-1.7%

Source: Company reports

Hero MotoCorp and Eicher Motors shine in the two-wheeler segment

Expectations of a good monsoon and strong rabi sowing, combined with a low base a year earlier has helped market leader Hero MotoCorp deliver a 10.1% YoY sales growth in February.

Customer preference for premium two-wheelers also helped Eicher Motors’ Royal Enfield to ride strong during the month, registering a growth of 20.9% in February.

On the other hand, weak exports continued to hamper Bajaj Auto’s performance, with its total sales declining 11.3% as exports dropped 37.6%. Overall, the continued weakness in foreign markets has brought down the share of exports in Bajaj Auto’s total sales to 45% in February 2023 from 64% in February 2022.

“The two-wheeler segment is enjoying the benefit of a weak base, although we expect it to start normalising in the coming months,” said a report by BNP Paribas.

CompanySales (Feb-23)YoY changeMoM change
Hero MotoCorp3,94,46010.1%10.6%
Eicher Motors (Royal Enfield)71,54420.9%-4.3%
Bajaj Auto2,80,226-11.3%-2%
TVS Motor2,76,150-2.0%0.4%

Source: Company reports

Analysts bullish on Maruti Suzuki, M&M, and Hero MotoCorp

Analysts across brokerages maintained their bullishness on Maruti Suzuki and M&M in the passenger vehicle segment, with the chip shortages expected to ease going forward.

According to a dealer check by analysts, both customer footfalls and demand for passenger vehicles have gained strength every month since the pandemic subsided.

Analysts at LKP Securities expect the launch of electric vehicles to help Hero MotoCorp going forward. Its peer, TVS Motor, reported its best-ever electric vehicle sales at 15,522 units, thanks to its iQube electric scooter.

In terms of segments, the analysts seem to prefer passenger vehicles, commercial vehicles and two-wheelers, in that order.


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