Automobile sector expected to normalise from Q2 FY22, say brokerages

Auto sales in June 2021 are expected to witness sustainable recovery after two months of negative sales hit by lockdowns imposed due to the second wave of Covid-19. However, Covid cases are on a decline. Some states have extended lockdowns with ease in restrictions as a precautionary step due to the new variants and fear of the third wave of Covid-19.

Overall, the auto sales numbers are not strictly comparable on a YoY or month-on-month (MoM) basis due to the unprecedented situation amid the pandemic. The monthly auto sales data will be released by companies from July 1. Here is what various research agencies expect.

Sharekhan

The easing of restrictions has helped the recovery of retail sales up to 65-70% of the normal levels.  The passenger vehicle segment is expected to remain strong. Rural demand is expected to recover strongly in southern and western India, given the timely arrival of the monsoon.

“We expect automobile sales to normalise from Q2 FY22 onwards. We expect most OEMs to reach 60-80% of normal dispatches in June. As the retail markets might take a few weeks more to get fully operational, we expect dealers inventory to increase in June 2021,” the brokerage said.

Exports are expected to continue to record strong momentum, with companies such as Bajaj Auto, TVS Motor, and Maruti Suzuki continue to deliver export volumes near to peak levels.

Motilal Oswal

The brokerage feels the passenger vehicle segment is better off than other categories. Inquiry levels recovered to a range of 70-80% compared to January-February 2021. Motilal Oswal said that their interaction with leading industry channel partners reflected the mixed sentiments of optimism and uncertainty. Most of the markets were open for 15-20 days in June 2021.

“Two-wheelers are worst impacted as the second wave has affected the rural and semi-urban markets. Rising fuel prices have further acted as a dampener to the demand as a result inquiry level has not picked up as expected. Inventory remains high at 45-60 days,” said Motilal Oswal.

On an MoM basis, Maruti Suzuki is expected to report around 200% growth in sales, M&M around 50-60%, Tata Motors 30-45%, Hero MotoCorp 70-90%, Bajaj Auto over 25 %, TVS Motor 40-50% and Escorts 70-80%.

Emkey Global

June 2021 volumes are likely to be higher than May’21 but they are unlikely to reach normal levels due to staggered unlocking across states during the month. We expect volumes to recover from Q2FY22 due to the easing of lockdowns, pent-up demand, and improving macros. Our positive view on the automobile sector is underpinned by expectations of a strong cyclical upturn, which is expected to last for at least three years.

The report further says that PV industry volumes should improve, due to a healthy order book and lower dealer inventories (2-3 weeks vs. normal level of 4 weeks). They have compared volumes with June 2019 numbers.

Two-wheeler industry volumes should be subdued as the second wave of the pandemic has impacted customer sentiment, especially in the case of the business community and low-income categories. Although domestic volumes would be under pressure, exports are likely to witness positive growth due to healthy demand and stable currency in key markets.

Overall, all brokerages remain positive in the automobile sector and the faster rollout of vaccinations will augur well for economic recovery. The demand is expected to grow from  second quarter of FY2022.