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No negative surprises, auto sales numbers for November likely to show an uptick

The festive season was reasonable with no major negative surprises. Demand after the festive season has been decent so far, brokerages point out.

November 30, 2020 / 12:14 PM IST

The auto sales numbers for November are expected to show an uptick as the sector remains a key beneficiary of economic recovery and low-interest rates.

Brokerages and analysts are optimistic about the sector but with a tinge of caution as the economic recovery is yet to gain full speed while COVID-19 continues to pose danger.

The festive season was reasonable with no major negative surprises. Demand after the festive season has been decent so far, brokerages point out.

As per brokerage firm, Emkay Global Securities, wholesale growth should be robust for tractors, two-wheelers (2Ws) and passenger vehicles (PVs), supported by healthy retails and a favourable base.

Emkay expects volumes to improve in the coming quarters on strong rural sentiment, low-interest rates, improving finance availability, and a gradual pick-up in the business and economic activity.

"In 2Ws and PVs, the base was low due to the timing of the festive season. In tractors, channel filling is also expected to aid growth," Emkay pointed out.

As per the estimates of Emkay, domestic 2W volumes should grow year-on-year (YoY): Hero MotoCorp by 20 percent, TVS Motor by 15 percent, Bajaj Auto by 13 percent and Eicher Motors -Royal Enfield by 4 percent.

Emkay believes PV industry volumes are likely to grow in double-digits. Domestic volumes should grow by 102 percent for Tata Motors, 23 percent for Mahindra & Mahindra, 2 percent for Maruti Suzuki. Growth for Maruti Suzuki is likely to be limited due to fewer production days, Emkay said.

Tractor wholesales should robust due to channel filling and healthy retail. Domestic volumes should grow by 76 percent for Mahindra & Mahindra and 49 percent for Escorts.

Domestic CV industry volumes are muted. Domestic CV volumes are expected to grow at 5% for Eicher Motors while declining by 1 percent for Ashok Leyland, 2 percent for Mahindra & Mahindra, 6 percent for Tata Motors.

As per the estimates of brokerage firm Motilal Oswal Financial Services, wholesales in November are expected to grow YoY for all segments, excluding-M&HCV, due to sustaining demand, inventory refilling and normalizing supply-chain bottlenecks at the OEM level.

"In November, wholesale volumes are estimated to grow at 19.6 percent for 2Ws on a low base, 12.6 percent for PVs due to sustaining demand and inventory refilling, and 6.5 percent for CVs on the back of LCV growth of 14 percent, but restricted by the nearly 5 percent decline in M&HCVs," Motilal Oswal said.

Wholesale volumes for tractors, as per Motilal Oswal, are expected to grow by 86.5 percent YoY on robust demand, the timing difference of Diwali in 2020 and a low base.

For the two-wheelers, Motilal Oswal is of the view that retail sales were flat to slightly negative during the entire festival period starting from the Navaratri to Diwali.

For Hero MotoCorp, their entire entry-level segment has performed well. For Bajaj Auto, their value product – Pulsar125 – was the highest selling, Motilal Oswal said.

As per the brokerage firm, dealers are holding an inventory of 1-1.5 months. Bookings for the upcoming marriage season are lower than expected at the dealer-end.

"Royal Enfield (RE) has a waiting period of 1-1.5 months for its bikes, with the newly launched Meteor garnering very good response. We expect restricted wholesales growth of nearly 10 percent for RE due to production loss on account of cyclone Nivar, 8.6 percent for Bajaj Auto (7.5 percent growth in domestic 2W), 25 percent for Hero MotoCorp and about 14 percent for TVS," Motilal Oswal said.

For the PV segment, Motilal Oswal pointed out that the overall PV retail sales during the festival period were better off than 2Ws. Maruti Suzuki is in a better position than peers due to its entry-level portfolio.

In the CV segment, sales have started showing signs of a recovery. Inquiries from the cargo segment have increased, but conversion is still low due to the uncertainty in demand sustainability after the festive season, Motilal Oswal said.

Demand for tractors remains encouraging due to good Kharif sowing and preference for farm mechanization. Both Mahindra & Mahindra and Escorts are operating at full capacity, Motilal Oswal said.

"While the festive season has augured well, with no major negative surprise, current demand and low inventory sentiment suggest higher wholesales in Dec’20. Valuations are reflecting a recovery during H2FY21, leaving a limited margin for safety for any negative surprises," Motilal Oswal said.

"We prefer companies with: a) higher visibility in terms of demand recovery, b) strong competitive positioning, c) margin drivers, and d) balance sheet strength. Mahindra & Mahindra and Hero MotoCorp are our top OEM picks," said the brokerage.

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first published: Nov 30, 2020 12:14 pm