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Moneycontrol Pro​ Panorama | Auto wreck

In today’s edition of Moneycontrol Pro​ Panorama: Bond yields flashing red, Sri Lankan crisis decoded, Jinping eyes third term, Start-Up Street and more

May 12, 2022 / 06:04 PM IST
Representative image (Source: Reuters)

Representative image (Source: Reuters)


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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

The auto sector is seeing no respite from mounting challenges. April's auto sales data released by the Society of Indian Automobile Manufacturers (SIAM) yesterday (May 11) showed that a combination of demand and supply problems is bogging down passenger vehicle (PV) and two-wheeler (2W) sales.

PV sales dropped 4 per cent in April, compared to a year ago, with the larger impact seen in cars and vans, while utility vehicles fared better. Ironically, robust demand in PVs has done little to improve the fortunes of car companies. Production got hit due to the pandemic-led semiconductor chip shortage and the problem has only worsened with the prolonged Russia-Ukraine war and continued lockdowns in China.

April certainly proved to be a weak start to the fiscal year, with sales dipping for Maruti and the No.2 player Hyundai. Last week, while announcing its March quarter FY2022 results, Maruti Suzuki India said it lost 270,000 units of production in FY2022 due to the chip shortage. Management commentary hinting of a continued shortage in FY2023 even overshadowed the large 320,000 units of pending bookings. Most brokerages downgraded the company's earnings for FY2023 and FY2024.

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Although Tata Motors sales are in an overdrive in domestic markets, fears of contraction in China, the largest market for its subsidiary Jaguar Land Rover, may hurt investor sentiment. The company is set to announce its fourth quarter and full year FY2022 results this evening.

The story is different in the case of two-wheelers that continue to be battered by demand headwinds. Analysts say a 40-50 per cent rise in cost of ownership over the past couple of years hit entry-level customer demand, at a time when jobs and incomes were affected by the pandemic. Unlike PVs, this segment suffers from demand woes, except in high-end motorcycles, which are facing production constraints due to the chip shortage.

Here again, earnings downgrades cannot be ruled out for the next 12-24 months. So far, electric 2Ws were doing well on the back of incentives. But rising technical glitches including vehicles going up in flames and failure to deliver on time may come in the way of faster adoption of EVs.

Some auto makers’ sales and production numbers could be deceptively higher from the year-ago period, which was hit by the fierce second COVID-19 wave. Putting this in perspective, SIAM Director General Rajesh Menon said in a statement, Sales of PVs are still below the April 2017 figures, while 2W are even below the April 2012 figures.”

In short, it's flashing red across the auto sector. As more auto companies announce results, adverse management commentary could precipitate more downgrades. The shortage of semiconductors, the Russia-Ukraine war, vehicle price hikes, fuel price increases and other supply chain issues continue to weigh down on buyer sentiment in consumer-led sectors -- PVs and 2Ws.

The mood is sombre on the Street. The Nifty Auto index has shed nearly 1000 points since January 2022.  A rising interest rate situation is another addition to the list of woes. How much the rise in interest rates hurts demand depends on how soon and how broad-based the economic recovery is, in the coming quarters.

Investing insights from our research team

Asian Paints: Sustained volume growth, better margins drive Q4

Cipla: Targets for US complex generics on track

Ramkrishna Forgings: Strong Q4 numbers, promising outlook, buy for long term

What else are we reading?

Yields are hardening, what does the future hold for Indian bond market?

The roots of the Sri Lankan crisis and the lessons to be learnt

Lessons from the investment trenches for challenging days

Voltas may regain market share, but not without denting margins

Backward integration gives UPL an edge in inflationary times

Can Xi Jinping vanquish COVID without crushing China’s economy? (republished from the FT)

The two hurdles that stand in the way of India’s exports ambition

Multinationals Should Help India and Brazil Cut Emissions

The Promise of Artificial Intelligence Hasn't Borne Fruit in Health Tech

Down With ‘Post-Globalization’: Free Trade Can and Must Survive Covid-19

And in Start-up Street,

Start-Up Street | Early exit – It happens more often than you think

Technical Picks: USD-INRGujarat Ambuja ExportsZeeCoromandel International and State Bank of India (These are published every trading day before markets open and can be read on the app)

Vatsala KamatMoneycontrol Pro
Vatsala Kamat
first published: May 12, 2022 05:58 pm
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