Automobile companies may report better sales numbers for June 2021 than the previous month on the back of easing lockdown restrictions in states amid a steady decline in new coronavirus cases. On a year-on-year (YoY) basis, numbers expected to be mixed, say experts.
Overall, the auto sales numbers are not strictly comparable on a YoY or month-on-month (MoM) basis due to the unprecedented situation amid the pandemic. The monthly auto sales data will be released by companies from July 1.
According to experts, numbers may remain muted as some dealer shops are only open for limited hours as fear of a third wave still persists. Experts expect sales to normalise Q2 FY22 onwards given the pent-up demand, improving macros and ease in restrictions.
"The easing of restrictions has helped recovery of retail sales up to 65-70 percent of the normal levels. Our interactions with original equipment manufacturer (OEMs) and dealers suggest strong demand from rural areas, though there has been a sales loss on account of the marriage season forgone in May and June of 2021," said Sharekhan.
The brokerage further said: "We expect automobile sales to normalize from Q2 FY22 onwards. We expect most OEMs to reach 60-80 percent of normal dispatches in June. As the retail markets might take few weeks more to get fully operational, we expect dealers inventory to increase in June 2021."
According to Sharekhan, exports are expected see strong momentum with companies such as Bajaj Auto, TVS Motor and Maruti Suzuki back to delivering export volumes near their respective peak levels. "The export regions such as Africa, Latin America, ASEAN, South Asia and Middle East regions remain largely less impacted by the second wave of COVID-19. Most of these markets have reached to pre-COVID levels."
BSE Auto index is up 0.7 percent in June so far, underperforming the BSE Sensex that gained 2 percent in the same period. However, the auto sector has outperformed the benchmark in the first six months of 2021, adding 14 percent against Sensex's 10 percent rise.
Motilal Oswal said the interaction with leading industry channel partners reflected mixed sentiment of optimism and uncertainty. Most of the markets were open for 15-20 days in June 2021, he said.
The brokerage feels passenger vehicles and tractors (up 6 percent CAGR over June 2019) are the only segments where volumes are higher than 2019 levels, whereas all other segments are materially lower (15-38 percent CAGR decline) than June 2019.
"2-wheelers are worst impacted as second wave has affected the rural and semiurban markets. Rising fuel prices has further acted as a dampener to the demand as a result enquiry level has not picked up as expected. Inventory remains high at 45-60 days," said Motilal Oswal.
The brokerage feels passenger vehicle segment is better-off then other categories. Enquiry levels recovered to range of 70-80 percent compared to January-February 2021.
"The demand for CNG vehicle remains strong however supply chain issues (CNG kit and chips) has increased waiting period of CNG vehicles. MSIL comes out to be major beneficiary of increase in CNG model demand," said the brokerage.
In case of commercial vehicles, Motilal Oswal feels dealers are expecting demand recovery to take place towards the end of Q2 FY22 as infrastructure demand is low due to monsoon, while cargo demand is still very low. "Financiers are quiet aggressive in funding any demand and loan-to-value (LTV) is stable around 85-90 percent."
On an MoM basis, Maruti Suzuki is expected to report around 200 percent growth in sales, M&M around 50-60 percent, Tata Motors 30-45 percent, Hero MotoCorp 70-90 percent, Bajaj Auto over 25 percent, TVS Motor 40-50 percent and Escorts 70-80 percent.
Experts see the numbers improving in the coming months amid the pick-up in vaccination drive, hopes of a normal monsoon and rural recovery.
"The government-led vaccination drive has taken centrestage after the rapid spike of COVID infections in wave-2. The faster rollout of vaccinations will augur well for economic recovery. Moreover, we expect the rural economy to recover strongly, led by the government's grounded initiatives for agriculture and farming sector, a strong kharif crop in the previous year, higher reservoir levels and the positive forecast of above normal rains this year by IMD," said Sharekhan.
As far as demand is concerned, the brokerage expects the pent-up demand to continue to drive growth for the automobile sector from Q2 FY2022. Moreover, OEMs dependent on exports will be better positioned to drive volumes during the current scenario, said the brokerage.
Overall, all brokerages remain positive on the automobile sector and expect recovery in FY22.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.