There is hope that auto sales will revive in June, having taken a hit in the previous month following lockdown curbs imposed by states amid the second covid wave. While volumes will likely rise in June, cementing expectations of normalisation, a complete recovery is likely only during the second half of FY22.
June volumes will be higher sequentially but are unlikely to reach normal levels due to staggered unlocking across states, said analysts at Emkay Global Financial Services in their report, adding that recovery will start from Q2FY22 due to the easing of lockdowns, pent-up demand and improving macros.
Analysts are expecting a faster recovery in tractor and passenger vehicle (PV) sales. A good harvest in the Rabi season and expectations of a normal monsoon are likely to drive the rebound in tractor sales, while an increased need for personal mobility will boost PV sales. Inventory levels, too, remain low, say analysts. Commercial vehicle (CV) sales will also likely improve but analysts remain cautious about two-wheeler sales.
Enquiry levels for PVs and tractors have improved faster than others, but were still below January and February levels for the former, said analysts at Motilal Oswal Financial Services. Demand for two-wheelers has been hit since the spread of the infections to rural areas, unlike after the first wave, when they were relatively less affected.
Two-wheeler manufacturers such as Bajaj Auto, TVS Motors, dependent significantly on exports, will continue to benefit from strong export momentum. Exports, generally to Africa, Latin America, ASEAN, South Asia and Middle East regions, remain less impacted by the second wave of covid-19, feel analysts.
Most of these markets have reached pre-covid levels, say analysts at Sharekhan who feel companies such as Bajaj Auto, TVS Motor and Maruti Suzuki will continue to deliver export volumes near to peak levels.
M&HCVs demand is expected to recover gradually with momentum catching pace by the end of the September quarter. This is because the monsoon season slows down construction activities and cargo movement. There is also low freight availability, leading to the postponement of purchases.
The current valuations are largely factoring in a sustained recovery, leaving a limited margin of safety for any negative surprises, say analysts at MOFSL. They prefer four-wheelers over two-wheelers, which is the least impacted segment and offers a stable competitive environment.
