Further ease in lockdown, attractive financing schemes, and expectations of normal monsoon could support automobile companies to build-on the demand recovery seen in May, and post improved sales figures on a monthly basis for June 2020, believe analysts.
“The Auto sector has been among the best performing sectors in recent months. This is attributed to the kick-start of the recovery process post the lifting of the lockdown. We are witnessing quick recovery in tractors, followed by two-wheelers and passenger vehicles, but commercial vehicles’ segment is yet to see any recovery,” wrote Jinesh Gandhi and Vipul Agarwal, research analysts at Motilal Oswal Financial Services in a recent sector report.
On Tuesday, the Nifty Auto index gained 1.4 per cent in the intra-day trade on the National Stock Exchange (NSE), as against 0.8 per cent rise in the benchmark Nifty index. In the past two months, the Nifty Auto index has outrun the benchmark index by surging nearly 13 per cent till Monday as against 4.5 per cent rise in Nifty, ACE Equity data show.
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Deep Shah and Amber Shukla, analysts at Prabhudas Lilladher, however, caution that weakness in retails could return going-forward as pent up demand and marriage season demand normalises and moratorium period benefits cease.
Auto firms are set to report their June sales figures Wednesday onwards. Here’s what leading brokerages expect:
The brokerage expects Maruti Suzuki India’s total sales to jump 115 per cent MoM to 39,800 units from 18,539 units in May 2020. On a yearly basis, this would be a dip of 68 per cent. As for Mahindra and Mahindra (M&M), total sales are seen at 55,200 units, up 63 per cent MoM.
Among two-wheelers, Hero MotoCorp’s total sales are pegged at a whopping 3.7 lakh units, logging a growth of 228.4 per cent sequentially. TVS Motor Company and Bajaj Auto are expected to follow with 160 per cent and 86 per cent month-on-month rise at 1.53 lakh units, and 2.37 lakh units, respectively.
“Our thesis of rural sales doing better than urban and tractors / 2Ws outperforming the broad auto sector is likely to play out in June as well. Dealer interactions indicate that retail sales have largely come back to pre-Covid-19 levels in June for tractors, around 80-90 per cent for 2Ws and 60 per cent for PVs,” wrote Kapil Singh and Siddhartha Bera, research analysts at the brokerage in their sales expectations report.
It sees Maruti Suzuki’s domestic sales at 55,000 units, while exports are seen at 7,500 units. For M&M, total auto sales are expected to be around 14,500 units, while tractor sales are pegged at 34,600 units.
Besides, Ashok Leyland’s total sales are at 2,500 units.
Among two-wheelers, analysts at the brokerage estimate Bajaj Auto’s total domestic sales at 1.52 lakh units while exports are seen at 1.15 lakh units. They peg TVS Motor’s total sales at 2.08 lakh units, including 48,000 units of exports.
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“While automotive sales are improving driven by enhanced business activity and pent-up demand, a sustained recovery is still some time away. We expect automotive sales to reach normal levels over the next 2-3 quarters. We expect a full-fledged recovery from FY2022 as long-term growth triggers such as lower vehicle penetration and favourable demographics are intact,” said analysts at the brokerage.
They see Eicher Motors' commercial vehicles’ segment growing 119 per cent MoM to 1,500 units, while Royal Enfield sales could rise to 40,000 units from 19,113 units in May 2020.
That apart, Hero MotoCorp and Bajaj Auto’s total sales are estimated at 4.5 lakh units, and 2.86 lakh units, respectively. This would translate into a 299 per cent MoM jump for the former and 125 per cent MoM growth for the latter.
It expects Maruti Suzuki to witness around 58 per cent YoY decline in sales volume to 53,918 units as retail sales seen doing better than wholesales. As regards M&M, it expects the tractor sales to see a marginal YoY decline, at 32,000 units, as demand continues to remain strong on strong rural sentiments. Automotive sales are likely to witness gradual recovery and are seen at 14,417 units, especially in rural portfolio amid supply constraints.
Ashok Leyland may continue to report weak numbers as dispatches are likely to witness a sharp decline due to weak demand amid the economic slowdown, excess capacity, and limited driver availability. Total sales are pegged at 2,596 units for June 2020.
Again, Hero MotoCorp is likely to outperform peers by clocking 245 per cent MoM growth in sales at 3.88 lakh units. In comparison, TVS Motor and Bajaj Auto may report sales at 1.75 lakh units, and 2.34 lakh units, respectively.