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Auto volumes likely to see mild uptick in June; here are 6 top picks as tractors are in fast lane

Brokerages believe, in the coming quarters, low base, pent-up demand, rural push and gradual improvement in economic activity may lift volumes for automakers.

June 30, 2020 / 11:03 AM IST
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Automobile players are likely to report a mild sequential uptick in their volumes for the month of June 2020 supported by pent-up demand, better rural sentiment, ramp-up in on-ground sales activities and improved dispatches due to higher plant utilisation levels, industry experts and brokerages believe.

Volumes, however, are likely to be lower than the last year’s levels across segments, except for tractors.

Tractors in fast lane

Rajit Rajoriya, Equity Research Associate at Angel Broking is of the view that due to better rural outlook and opening up of the economy, the tractor segment is expected to outperform the larger automobile space in FY21.

As per brokerage firm Emkay Global, tractor demand is strong due to positive rural sentiment. Domestic wholesale is expected at 86,000-88,000 units implying a strong growth of 13-16 percent year-on-year (YoY). Retail sales are higher than wholesale by 5-8 percent.


"As per our checks, states with strong growth are Uttar Pradesh, Madhya Pradesh, Maharashtra, Haryana, Tamil Nadu, Rajasthan and Punjab, while states with muted performance are Odisha, Bihar, Karnataka, Andhra Pradesh and Chhattisgarh," said the brokerage.

"Mahindra & Mahindra and Escorts are expected to grow at 14 percent and 13 percent, respectively, in the domestic market," Emkay said.

The brokerage underscored that the domestic two-wheeler industry volumes have notably improved on a month-on-month (MoM) basis due to pent-up demand, better rural sentiments and marriage season in states such as Uttar Pradesh, Rajasthan, Bihar, etc.

Brokerage Prabhudas Lilladher highlighted that tractor segment demand continued to remain robust for the month led by higher crop yield, high reservoir level, easy finance availability and higher purchases from the government.

"Exchange sale has come down to nearly 25 percent (earlier about 40-45 percent), indicating an increased share of first-time buyers. 55HP tractors have seen good demand," Prabhudas Lilladher said.

"Supply unavailability is the only hindrance as channel inventory (including depos) across tractor OEMs is only about 10-15 days (against 80-90 days normally), which even went to nil during mid-June," Prabhudas said.


For two-wheelers, the retail volume may be better than the wholesale volume.

However, domestic volumes could fall on a YoY basis, by 32 percent for Bajaj Auto, 35 percent for Hero MotoCorp, 35 percent for Eicher Motors (Royal Enfield) and 38 percent for TVS Motor, Emkay said.

As per Prabhudas Lilladher, the two-wheeler segment came back stronger post lockdown with retail normalizing to the extent of nearly 70-75 percent of the normal sales (against nearly 30-35 percent in May). "This was led by pent up demand (contributing nearly 45 percent), marriage season demand (contributing nearly 35 percent) and strong rural sentiments," Prabhudas said.

PV segment

In the passenger vehicle (PV) segment, domestic volumes are improving on an MoM basis but lower on a YoY basis.

"Our interactions with dealers indicate that a shift toward personal mobility has also marginally supported volumes," Emkay said.

"Retail numbers are better than wholesale. Domestic volumes could decline on a YoY basis, by 62 percent for Maruti Suzuki and 65 percent for Mahindra & Mahindra," Emkay said.

As per Prabhudas Lilladher, nearly 8-10 percent increase in first-time buyers is driving retails back to about 55-56 percent of normal for June 2020 (against nearly 40-45 percent for May).

"Sales conversion increased MoM across the OEMs with Maruti being the highest at nearly 17-19 percent (against 10-12 percent), Hyundai about 14-16 percent (against 10-12 percent), Mahindra & Mahindra nearly 9-11 percent (against nearly 5-7 percent) and Tata Motors nearly 8-10% (against nearly 5-7 percent).

CV segment

Domestic commercial vehicle (CV) industry volumes remain in the slow lane, due to surplus capacity with fleet operators. The fall is higher in medium and heavy commercial vehicles (MHCVs) than light commercial vehicles (LCVs).

As per Emkay, domestic volumes could decline on a YoY basis, by 62 percent for Mahindra & Mahindra, 82 percent for Ashok Leyland and 85 percent for Eicher Motors.

Prabhudas Lilladher sees initial signs of recovery for LCVs as demand increased to nearly 45-50 percent of the normal (against nearly 25-30 percent in May 2020) led by higher e-commerce, pharma, consumer

durables and agri movement (together contributing about 60-65 percent of demand).

Prabhudas said that despite an increase in fleet utilization at 40-45 percent (against about 25-30 percent in May), transporters have failed to achieve profits due to higher diesel cost (nearly 65 percent of operating cost), driver’s salary (2 times of the normal), toll charges (increased by 15 percent) and unavailability of return freight.

"New truck demand may remain subdued in the near term as prices for used trucks have significantly reduced. There are nearly 50 percent discounts on 2-3 years old truck. We expect financing issues to at least remain over the next couple of quarters," said Prabbhudas Lilladher.

The road ahead and the stocks to look at

Rajoriya of Angel Broking expects a shift towards personal mobility due to increased social distancing which should lead to increased demand for two-wheelers and entry-level passenger vehicles.

He is of the view that  MHCVs, under the commercial vehicle segment, are likely to remain under pressure due to increased vehicle prices under BS-VI norms and lower level of economic activity will not be able to generate positive sentiments among buyers in such times.

"Buses demand will remain subdued due to the avoidance of public transport because of social distancing awareness. However, LCVs will continue to show good traction due to e-commerce growth and affordability. Going forward, We have a positive outlook on tractors and two-wheelers, neutral for passenger vehicles and LCVs and negative for MHCVs," Rajoriya said.

Brokerages believe, in the coming quarters, low base, pent-up demand, rural push and gradual improvement in economic activity may lift volumes of automakers.

Escorts (target price: Rs 1,103), Eicher Motors (target price: Rs 19,954), Ashok Leyland (target price: Rs 74), Amara Raja (target price: Rs 732) and Motherson Sumi (target price: Rs 115) are Emkay's top picks from the sector.

On the other hand, Prabhudas Lilladher has 'buy' calls on Eicher Motors (target price: Rs 18,665), Maruti Suzuki (target price: Rs 5,830) and Motherson Sumi (target price: Rs 116).

Disclaimer: The views and investment tips expressed by investment experts on are their own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Jun 30, 2020 11:03 am
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