India's auto sales may have improved in August owing to pent-up demand, better rural sentiment, low-interest rates, improvement in finance availability and a gradual pick-up in business and economic activities, said brokerages.
Even though a sharp uptick is not expected across the segments, as the sectors still have headwinds in terms of subdued demand, brokerages highlighted that some positive momentum was seen in demand during August, and original equipment manufacturers (OEMs) saw production normalising with continuous improvement in the supply chain.
In a note, brokerage firm Motilal Oswal Financial Services said that although some sporadic lockdowns are still in place, OEMs have largely adjusted to the new normal and are matching supply with demand and slowly moving to inventory refilling.
"Demand recovery has sustained on account of increasing preference for personal vehicles and high disposable incomes in the rural markets. For August, most of the OEM plants further improved utilisation on a month-on-month (MoM) basis," Motilal Oswal said.
"Two-wheelers (2Ws) and passenger vehicles (PVs) are seeing a demand shift from aspirational to need-based demand. The majority of entry-level PV customers and urban 2W customers are purchasing vehicles for safety purposes, who otherwise may have avoided the purchase," said Motilal Oswal.
Motilal Oswal pointed out that the overall consumer sentiment has improved, but urban customers remain cautious given the uncertain environment.
Tractors
Tractors, once again, can emerge as the brightest in the sector as better rural economic outlook sustains, thanks to the favourable monsoon.
Brokerage firm Emkay Global Securities expects robust double-digit growth in tractors while growth in PVs should turn positive year-on-year (YoY), supported by early festive period (Ganesh Chaturthi and Onam in August this year against September last year) and improved dispatches driven by higher plant utilisation levels.
"In tractors segment, Escorts and Mahindra & Mahindra are expected to grow YoY at 51 percent and 33 percent, respectively, in the domestic market," Emkay said.
As per Motilal Oswal, tractor volumes are expected to grow nearly 45 percent YoY on a low base and continued retail momentum.
"Wholesale for the month would be a mixed bag, reflecting demand fulfilment for certain models due to supply shortage and inventory refilling for other models," Motilal Oswal said.
Passenger vehicles
"Domestic PV industry volumes are likely to be better YoY, helped by positive growth for OEMs such as Maruti Suzuki, Tata Motors, Renault, Kia Motors and MG Motors. Domestic PV volumes should grow 15 percent YoY for Maruti Suzuki, while Mahindra & Mahindra should record a 14 percent decline," said Emkay.
Motilal Oswal believes that the entry-level segment and a low base have led to growth, driven by a preference for PVs in the current crisis, with a higher share of first-time buyers.
"Maruti Suzuki is in a comparatively better position than peers due to its entry-level portfolio. Volumes are expected to grow about 19 percent for Maruti Suzuki (on a low base) and nearly 1.9 percent for Mahindra & Mahindra’s UV (including pick-ups)," Motilal Oswal said.
Two-wheelers
Emkay Global expects a sequential improvement to continue in 2Ws.
As per Emkay, domestic 2W industry wholesales are likely to improve sequentially due to festive demand and higher production levels.
"Domestic volumes could grow by 7 percent YoY for Hero Motocorp and 4 percent for Bajaj Auto. In comparison, we expect a decline of 2 percent for TVS Motor and 8 percent for Eicher Motors (Royal Enfield)," Emkay said.
Emakay added that despite strong order bookings of nearly 60,000 units in August, Eicher Motors (Royal Enfield) is expected to see a volume decline due to the slow ramp-up in utilisation levels at its plants.
As per the estimates of Motilal Oswal, August wholesale is expected to grow on the back of sustained demand, the supply chain normalising and inventory replenishment.
The brokerage said inquiries and bookings sustaining at pre-COVID levels reflect not only demand sustenance but also the acceptance of the BS6 price hike.
"We expect wholesale to decline by 5 percent for Royal Enfield (majorly due to supply-side constraints), fall 3 percent YoY for Bajaj Auto (6 percent growth in domestic 2W), be flat for TVS, and grow 10 percent for Hero MotoCorp (on account of its strong rural portfolio)," Motilal Oswal said.
Commercial vehicles
Domestic CV industry volumes likely remained in the slow lane due to surplus capacity with fleet operators. The fall is higher in medium and heavy commercial vehicles (MHCVs) than in light commercial vehicles (LCVs).
"Domestic CV volumes should decline 16 percent YoY for Mahindra & Mahindra, 32 percent for Ashok Leyland and 40 percent for Eicher Motors, Emkay said.
As per Motilal Oswal, CV wholesale may show some sequential improvement owing to some demand from the construction segment and an inventory push from OEMs.
The brokerage believes CVs are witnessing demand only from the infrastructure and construction sector, which accounts for nearly 30 percent of total sales.
Motilal is of the view that volumes would decline nearly 49 percent YoY for CV (excluding-Tata) due to low demand.
"Actual demand recovery has been slow due to excess capacity, low economic activity, and financiers turning cautious as many fleet operators have already opted for the moratorium," Motilal said.
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