As the COVID situation continues to worsen in India, auto sales may take a significant hit in April given regional lockdowns, supply constraints and lower footfalls. Experts see it as a short-term hindrance as they expect sales to rebound sharply once the situation is constrained.
As for April, experts expect a double-digit decline across all segments, be it passenger or commercial, in both urban and rural markets.
"Our interactions with leading channel partners indicate a sharp decline in month-on-month retails led by regional lockdowns, supply challenges for few original equipment manufacturers (OEMs) and lower footfalls (down 45-50 percent) in key festive/marriage season," Prabhudas Lilladher said.
"Unlike last year, this time rural sales are also impacted as retails and urban are expected to decline 40-42 percent and 60-62 percent MoM respectively. Consequently, we expect wholesale for April 2021 to decline 15-20 percent MoM across segments," the brokerage added.
Motilal Oswal also feels their interaction with leading industry channel partners reflects caution. "2-wheeler demand has been slowing, with inventory of 30-60 days at the dealers' end, especially since the key marriage season and mini festive season were impacted due to COVID-19. Passenger vehicle demand momentum has slowed, with people postponing their purchases. Demand for medium & heavy commercial vehicles (M&HCVs) remains strong in the infrastructure segment, while the cargo segment has slowed down," the brokerage explained.
Passenger Vehicles
"Channel check suggests passenger vehicle retails to decline 35-40 percent MoM across OEMs. On the other hand, bookings have also declined by 30-33 percent," said Prabhudas Lilladher, adding key states such as MP, UP, Tamil Nadu and other Northern parts carried momentum till last month, have now been impacted the most due to COVID restrictions, while some states such as Gujarat, Rajasthan, MH and Karnataka (58-60 percent decline in retails) continue to remain weak.
Motilal Oswal also sees new bookings for passenger vehicles decline by 30-50 percent, while cancellations to be around 10 percent. "The waiting period has increased due to supply chain constraints at the OEM level. Dealers are holding 10-20 days of inventory. Volumes are expected to decline by around 5 percent MoM for Maruti Suzuki, 3 percent MoM for Mahindra & Mahindra, and 19 percent MoM for Tata Motors (impacted by restricted production at its Pune plant)," said the brokerage.
2-Wheeler
"2-wheeler sales have been the worst hit as they missed the mini festive and marriage season, resulting in inquiries declining by around 50 percent. Rural demand is still better than urban due to a bountiful Rabi harvest. Dealers are holding 1-2 months of inventory. We expect 2-wheeler wholesales for Bajaj Auto to fall by 6 percent MoM, TVS Motor by around 20 percent, Hero MotoCorp by around 22 percent and Royal Enfield by around 6 percent," said Motilal Oswal.
Prabhudas Lilladher said channel checks suggested continued weak demand momentum for 2-wheelers with an expected decline of 53-55 percent MoM.
"Inquiries during the month were lower for both urban (60-62 percent MoM) and rural (43-45 percent MoM). This was largely led by i) lower/negligible sales during marriage season in key states like UP, Raj, MP, Bihar, etc. (usually contributes 20-25 percent of sales), ii) 50-55 percent lower footfalls during Navaratri/Gudi padwa and iii) selective financing," said the brokerage.
MHCV
Prabhudas Lilladher said commercial vehicle retails may decline by 30-32 percent MoM in April 2021 largely led by COVID restrictions, labour shortage in states, supply shortages (waiting of 25-30 days).
But MHCV demand is better placed than SCV/LCVs as there have been no major restrictions on the movement of steel, cement, capital goods, etc. resulting in continued momentum for tipper and trailers, and the financing situation also remained favourable as captive NHFCs are more aggressive, said the brokerage.
Motilal Oswal also said as most commercial vehicle dealerships are on highways, they are least impacted by the lockdown, and LCV and SCV demand has also slowed due to restrictions on the sale of non-essential goods by e-commerce players in certain regions.
The brokerage expects Ashok Leyland's wholesales to decline by around 27.5 percent MoM (around 28 percent for M&HCVs), Tata Motors by around 21 percent (around 25 percent for MHCVs).
Tractor
Prabhudas Lilladher expects a 33-35 percent MoM decline in retails for April 2021 largely due to lower footfalls throughout the month (48-50 percent), which the brokerage believes is a temporary phenomenon.
The brokerage further believes demand sentiments for tractors continue to remain healthy as local mandis are still operating, healthy monsoon will help demand in sowing season and the availability of better finance (around 90 percent finance penetration).
On the other hand, as the supply chain keeps improving followed by lower retails during the month, inventory levels continue to inch up to 4-5 weeks (versus 5-6 weeks normally), said the brokerage which sees channel filling to continue for the entire Q1.
Picks
Motilal Oswal prefers companies with a) higher visibility in terms of demand recovery, b) a strong competitive positioning, c) margin drivers, and d) balance sheet strength. Maruti Suzuki and M&M are its top OEM picks and Tata Motors as a play on global passenger vehicles.
Prabhudas Lilladher prefers Ashok Leyland as MHCV volumes will recover by the first half of FY22, and M&M is well placed to grow in FY22 due to a healthy outlook for the FES segment led by healthy farm sentiments and strong rural presence benefitting UV sales.
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