Retail growth in auto sales for the month of November is likely to be sharply lower for all companies due to currency demonetisation and post festive demand moderation, brokerage houses say.
Nomura says demonetisation of high-value currency notes in India since November 8 has severely impacted retail demand sentiment and enquiries.
While the impact on wholesale volumes will be lessened significantly for many companies, to fill up depleted inventory post a healthy festive season, it believes retail growth will be sharply down for nearly all companies.
According to its research note, normalised availability of cash may happen by January-February 2017; post which Nomura expects growth to pick up. It expects strong double-digit growth by H2FY18 on the low base.
Nomura says the medium and heavy commercial vehicle (MHCV) segment is likely to be impacted the most due to a high dependence on cash transactions at the retail level. It expects around 7 percent drop in industry volumes.
It expects the passenger vehicle (PV) industry sales to decline around 4 percent YoY while two-wheeler industry growth is likely to remain flat YoY.
On the other hand, export volumes for Bajaj Auto and TVS Motor may disappoint due to slowdowns in key markets (for instance, the Egyptian pound's devaluation from 9 per dollar to 18 per USD dollar is likely to impact on demand), it says.
Meanwhile, after interaction with dealers, Motilal Oswal says enquires/footfalls at showrooms of passenger vehicles were down 30-40 percent for November while footfalls at 2-wheelers dealers reduced by 60-70 percent during the first week post demonetisation. However, situation has improved relatively in the past 1 week, but still down 30 percent. Besides, 2W volumes could see marginal respite on account of marriage season.
The brokerage house believes impact on 2Ws to be higher as cash transactions account for 50 percent of non-financed (30-35 percent) transactions, while the down payment for financed transactions (65-70 percent) is mostly in cash.
It feels volume decline for Hero Motocorp, TVS Motor and Honda Motor will be sharper as compared to Bajaj and Royal Enfield. Medium & heavy commercial vehicle volumes too are expected to decline sharply inspite of a favourable base, according to its research note.
Sales expectations for November YoY
|Maruti Suzuki||Sales seen flat at 1.21 lakh versus 1.20 lakh units due to strong demand for Brezza/Baleno and limited inventory||Sales may decline 5% to 1.15 lakh units, primarily due to waiting periods in Brezza and Baleno|
|Tata Motors||Sales may slip 20%||Sales may fall 4.1% to 37,327 units due to lower CV sales|
|M&M||Sales seen down 9.5% at 57321 versus 63307 units; UV growth may decline sharply by 20% YoY||M&M is expected to record a 14% overall decline as UV sales are likely to plummet.|
|Ashok Leyland||Sales may fall around 19% on a low base YoY on a low base, inventory filling and strong export orders||Volumes are expected to decline by 11% YoY at 8,000 units|
|Hero Motocorp||Sales seen down 12% at 4.84 lakh versus 5.50 lakh units||HMCL's volumes may see the sharpest decline of 9% YoY at 5 lakh units on account of higher proportion of 100cc motorcycles and negligible exports.|
|Bajaj Auto||Sales seen down 19% at 2.50 lakh versus 3.09 lakh units led by weak exports||Sales is likely to decline 1.8% to 3.04 lakh units|
|TVS Motor||Sales may disappoint due to slowdowns in key markets||Sales may decline 2% to 2.21 lakh units|
|Eicher Motors||Royal Enfield volumes may see limited impact with 57,000 units (up 40% YoY) while VECV sales may fall 1%||RE sales may jump 41% to 57,500 units while VECV sales is likely to fall 11% to 3,142 units|
|Top picks||Maruti Suzuki||Maruti Suzuki, Tata Motors|