Sector Update | 28 May 2020
Industry limping back from lockdown’s impact…
“This has been the trend
before covid-19 and the
expectation that it will
continue is reasonable and
logical. The rabi crop has been
very good and farm incomes
will be higher as a result. The
effect of covid-19 seems to be
more in urban clusters than
rural areas. So, that part is
also positive. The negative is
that some urban activity-led
income, which used to go
back to rural areas through
migrant labourers, will be a
little impacted. Rural sales will
bounce back quicker.”
Mr Shashank Srivastava,
executive director, marketing
and sales, Maruti Suzuki
…as both demand and supply side restart in constrained manner
After almost zero sales in Apr’20 due to the complete lockdown, the Indian Auto
industry has restarted operations (both plants and dealerships) partially, even as it
adheres to new operating norms. For Apr’20, most OEM plants were operating at <30%
average utilization while <50% dealer outlets were operational (except tractors, which
had 60-70% operational dealerships).
Our interaction with leading industry channel partners indicates 2W/PVs are seeing
resurgence in inquiries (~50% of normal at operational dealerships). On the other
hand, CVs are seeing negligible demand (from construction sector only). Overall
consumer sentiment is low and even in rural markets, customers are cautious with
spending given the uncertain environment.
Wholesales are expected to decline substantial in May’20 for all OEMs due to (a) the
lockdown, (b) absence of non-discretionary demand, and (c) supply constraints. While
demand for 2Ws and PVs is seeing some recovery from semi-urban and rural markets,
CVs have minimal demand due to low economic activity and cautious financiers as
many operators have already opted for moratorium. Also, to lend to CVs/3Ws,
financiers currently are stringent and highly risk averse.
In May’20, wholesale volumes are estimated to decline ~77%/~77%/~90% YoY for
2Ws/PVs/CVs due to the lockdown and low demand. Tractors volumes are expected to
decline by ~71% YoY.
2Ws: Demand is returning driven by (a) preference for personal vehicles rather than
the public transport, and (b) higher disposable income in rural market due to good
harvest. While this could be an initial spurt in demand, sustenance of the same is a key
monitorable. We expect wholesales to decline 73% YoY for BJAUT (75% fall in domestic
2Ws), 76% YoY for TVSL, 80% for HMCL and 75% for RE, majorly due to the lockdown.
PVs: Post the gradual lifting of lockdowns sales have recovered slightly, largely due to
conversion of pre-lockdown bookings. MSIL is in a comparatively better position than
peers due to its entry-level portfolio. Volumes are expected to decline ~74% for MSIL.
Wholesales should decline ~85% YoY for M&M UVs (incl. pick-ups) and ~86% for TTMT
PVs due to the lockdown.
CVs: The CV segment is the hardest hit due to low economic activities. Our channel
checks suggest that MHCVs have seen marginal demand only from the construction
segment and are not expected to recover before the festive season. This is due to (a)
BS4 pre-buying in 4QFY20, (b) price hike of 16-18% on BS6 (12-13% cost inflation + 3-
5% due to discount withdrawal), (c) depressed fleet utilization, and (d) stringent
financing norms. We expect CV wholesales to decline ~91% for TTMT (-95% for
M&HCVs) and ~92% YoY for AL (-95% for M&HCVs).
Tractors: The Tractor segment was better off than others due to good Rabi harvest,
robust reservoir levels and forecast of normal rains supporting demand along with
comparatively relaxed lockdown norms, which has supported supply. We expect
tractor volumes to decline ~70% YoY for M&M and ~75% for Escorts due to supply-side
Jinesh Gandhi – Research Analyst
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Vipul Agrawal – Research Analyst
(Vipul.Agrawal@MotilalOswal.com) +91 22 7193 4322
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P
27 March 2020
Investors are advised to refer through important disclosures made at the last page of the Research Report.