30 November 2016
Automobile
Ground
Reality
Demonetization: Key takeaways from conference call with experts
We hosted calls with dealers of Maruti Suzuki and Royal Enfield to understand their views on
impact of demonetization on demand (PVs/2Ws). Key takeaways are as follows:
Demand is gradually improving across both PV and 2W segments. Retail sales for the
month are down 20-25% for these segments.
Cash transactions formed 45% of sales for RE dealer and ~28-30% for MSIL dealer.
Financed sales have also taken a hit as down-payment is majorly done in cash. Rural
areas are more affected as cash component is higher there.
MSIL dealer has started zero amount booking scheme, while transaction structure is
unchanged at RE dealer.
RE dealer expects the situation to normalize in a month, while MSIL dealer believes it
could take 10-15 days.
Key highlights of call with Royal Enfield dealer
“Retail sales down 20%; expect things to return to normal levels in a month”
Walk-ins and bookings were almost nil for one week after demonetization. Enquires/footfalls have started
rising gradually, but still are ~20% lower than the previous month.
RE dealer records 150+ monthly retail volumes on average, but has clocked in 110-115 in Nov-16.
Cash transactions accounted for ~45% of sales, while remaining ~55% was financed/bank sales. Booking
amount is uniform for all models at INR4-5k, which is majorly in cash. Post 2-3 months of booking, down-
payment of INR40-50k is made (majorly in cash). This has been hit due to cash crunch and leading to
cancellations. About ~20-30% deferment is seen. There is no change in the booking structure of dealers, nor is
there any intimation from the company regarding this.
Retail sales of higher cc bikes are more affected. The 500cc motorcycles are worst hit, while demand for 350cc
bikes has started coming to normal levels.
Urban areas account for ~65% of volumes and rural for the rest. In terms of geographical mix, south accounted
for 30-40% of sales and west for 30%.
Outlook:
The dealer expects demand to return to normal level by Jan-17 as liquidity improves.
Key highlights of call with Maruti Suzuki dealer
“Introduced zero amount booking scheme; expect situation to return to normal in 10-15 days”
Inquiries have dropped to 20-25 per day v/s 30-35 earlier. Retail sales have dropped by 20-25% (as down-
payment is mainly done in cash). The dealer expects the situation to normalize in next 10-15 days.
Retail conversion has impacted the most in 3-4 models (Brezza, Baleno, S-Cross and Ciaz) due to higher booking
amount. Conversion from walk-ins to booking fell 20-30%. Rural sales are down 20-22%. Maximum impact is on
tourist vehicle demand as cash component is high. Ola/Uber account for 30-40% sales volumes for the dealer.
The dealer has started zero amount booking scheme to safeguard demand in the wake of demonetization.
About 5-10% bookings have been done under the current zero booking schemes.
60-65% sales are financed, while 10% are to institutions. The remaining 25-30% sales, which are non-financed,
have high cash component (70-80%). Therefore, total cash component formed 28-30% of sales, primarily due to
high proportion of non-financed sales and cash down-payment of financed transactions.
Turnaround time from inquiry to booking has increased from 6-7 days to 10-12 days. Booking to retail sales
average time for Maruti even before de-monetization was 20-25 days.
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 3982 5416
Aditya Vora
(Aditya.Vora@MotilalOswal.com); +91 22 3078 4701
/
Venil Shah
(Venil.Shah@MotilalOswal.com); +91 22 3982 5445
Investors are advised to refer through important disclosures made at the last page of the Research Report.
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Ground
Reality | Cement
Inventory stood at 20-21 days. The dealer sells ~600 cars/month on average, while sales in Nov-16 have been
525-550.
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