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Last Updated : Oct 31, 2019 07:03 PM IST | Source: Moneycontrol.com

Brokerages expect festive demand to support PV sales in October, but double-digit fall could continue in CV, 2W

Tata Motors is also likely to show double digit fall in sales YoY during the month due to focus on inventory correction.

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The renewed buying interest for vehicles during Diwali has lifted sentiment in the auto space. This may help passenger vehicle sales see marginal growth in October.

However, this growth may not reflect in two-wheeler and commercial vehicle segments.

According to Japanese brokerage Nomura, passenger vehicles could see around 3 percent growth as festive season retail sales increased by mid-single-digit and wholesales should benefit from the festive season being bunched up in October 2019.


"Substantial increase in discounts and aggression by public sector banks toward auto loans has boosted Diwali sales. Inventories post the festivities are less than 30 days. However, given the possibility of moderation in discounts by OEMs, dealers are not yet clear about the sustainability of this recovery," Motilal Oswal said.

Maruti Suzuki, the country's largest car manufacturer, may report 15.8 percent year-on-year (YoY) growth in sales at 1.7 lakh units in October due to strong retail sales in the festive season and leaner inventory than competitors, Nomura said, adding Mahindra & Mahindra's utility vehicle segment may post 15 percent decline in sales YoY.

Tata Motors is also likely to show double-digit fall in sales YoY during the month due to focus on inventory correction.

In the case of the two-wheeler segment, the slowdown is likely bottoming out, but the industry sales may fall in double-digit YoY in October.

"The segment witnessed a sharp pick-up in demand this Diwali, particularly motorcycles in the entry/executive segment. This has resulted in inventory correcting back to below 30 days. Royal Enfield also saw a good spurt in demand, however, low inventory (around 3 weeks) has resulted in a stock-out situation in many key markets," said Motilal Oswal.

Hero MotoCorp's retail sales may decline 17 percent and Bajaj Auto 25 percent YoY fall while Eicher Motors' Royal Enfield sales could increase 7 percent YoY, according to Nomura.

On wholesales front, Motilal Oswal expects Bajaj Auto wholesales to decline around 10 percent (around 18 percent fall for domestic 2-wheeler volumes), while TVS Motor volumes are estimated to dip around 6 percent YoY. "Hero MotoCorp wholesales are estimated to slip around 9 percent and Royal Enfield dispatches should decline around 5 percent YoY," it said.

Medium and heavy commercial vehicle (MHCV) sales volume decline is likely to be steep at 49 percent YoY due to weak demand and inventory clearance.

Nomura said, "Our industry interactions lead us to believe that retail sales have been higher than wholesale volumes and inventory stands at around a month."

"There were no signs of recovery in the CV segment. However, continued production cuts by OEMs over the last few quarters have led to inventory correction (of around 30-35 days). We expect CV wholesales for both Tata Motors and Ashok Leyland to decline around 37 percent YoY (around 49 percent decline for M&HCVs)," Motilal Oswal said.

Ashok Leyland and Eicher Motors are likely to show around 41 percent decline each in sales each during October, according to Nomura.

The recovery in auto space already reflected in stock prices as the Nifty Auto index rallied 20 percent since August 23 when the government started announcing several measures to boost the economy.

"Given this outperformance and current valuations, sustained demand recovery would be the key to further stock performance hereon. Our preference remains for PVs over CVs/2Ws as the segment is (a) expected) to be least impacted by the BS6 transition, and (b) likely to face less risk of EVs as well as competition, in turn reflecting better earnings growth," said Motilal Oswal.

Its top picks in autos are Maruti, Tata Motors and Motherson Sumi among large caps and Ashok Leyland and Endurance among midcaps.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Oct 31, 2019 07:03 pm