The mounting woes on the automobile sector are taking a graver turn as Covid-19 sweeps the nation and the world. The two-wheeler industry is particularly taking the brunt of the overall economic mayhem the virus is creating with huge backlog of BS-IV vehicles — running into a few lakh. With the earlier deadline to switch over to BS-VI emission norms ended on March 31, 2020, the recent Supreme Court order extending the sale of vehicles for 10 days after lifting of the lockdown on April 14 will hardly bring any cheer to the industry, observed analysts tracking the industry. The auto industry was expected to recover from 2HFY21 after clearing the last hurdle of BS-VI transition, but the coronavirus breakout in India has come as an additional challenge for the already battered auto industry, the analysts maintained.
Based on the discussions with channel partners, analysts found that the BS-IV inventory for passenger vehicles and commercial vehicles is almost cleared, but 2W (two-wheeler) BS-IV inventory is stuck because of the lockdown. Wholesales are expected to decline substantially in March for all original equipment manufacturers (OEMs) due to the lockdown from March 25 (many plants are shut from March 21), said an analyst with Motilal Oswal. Based on a latest interaction with leading channel partners, the analyst said 2W dealers found it difficult to convert the enquiries into sale despite huge discounts on the vehicles. On top of that, the lockdown has dealt a blow to the enquiries too. The companies have to end with huge backlog of two-wheelers. Enquiries for BS-IV CVs, on the other hand, have also come down drastically after most of the BS-IV inventory got exhausted.
Though the BS-IV inventory for M&HCV was exhausted by the last week of February, that of ICV and LCV were almost exhausted by the second week of March with registration in progress. But, the registration of sold CVs has come to a hold. Following this, companies expect CV wholesales to decline 68% for TTMT (71% for M&HCVs) and 66% YoY for AL (73% for M&HCVs), the Motilal Oswal analyst said.
“Despite high discounts ranging from `3,000 to `12,500 and ensuing wedding season in April, the two-wheeler system inventory stood at 30-35 days across OEMs, including 10-12 days BS-IV inventory before lockdown. We expect wholesales to decline by 33% YoY for Bajaj Auto (51% fall in domestic 2W), 42% YoY for TVS Motor, 41% for HMCL and 27% of Royal Enfield due to lockdown,” Motilal Oswal said. An analyst with Prabhudas Lilladher said, “Based on our interactions with leading channel partners, it has been found continued weak retails since beginning of the month led by lower footfalls due to Covid-19 impact, weak consumer sentiments and restricted financing on B-IV vehicles. We also noted loss of sales on ‘Gudhi Padwa’ festival in key markets like Maharashtra and Gujarat.
Our channel check suggested higher BS-IV stock of around 5 lakh units of two-wheelers, with HMCL being the highest (10-11 days) followed by Bajaj Auto (six-seven days), HMSI (five-six days) and TVS (four-five days), while RE has nil BS-IV inventory.” “We noted high discounts by HMCL for both scooters (up to `10k/unit) and motorcycles (up to `12k/unit). While discounts in Bajaj Auto (up to `5k), TVS (up to `6k) and HMSI (up to `3k),” the analyst added. On the other hand, for PVs, sales were marginally lower as BS-IV inventory is almost exhausted and customers are postponing purchases due to bleak sentiment. And for CVs, some weakness was expected in CVs post BS-IV pre-buying, but the situation will worsen with lockdown. BS-IV inventory for M&HCV was exhausted by the last week of February, whereas ICV and LCV inventories were almost exhausted by the second week of March with registration in progress. However, registration of sold CVs has come to hold due to lockdown.
We expect 2Ws dispatches to decline by 40-42% YoY led by inventory management before BS-VI transition, lower production due to short supply of components from China and stringent financing on BS-IV vehicles. Weak demand trend continues for CVs and the sector expect to decline by 73-75% YoY led by OEMs’ inventory management, lower freight availability and liquidity challenges for the transporters.” According to Care Ratings, while the industry players were looking for a three month extension, till June 30, 2020, the 10-day extension post the lockdown by the Supreme Court is not expected to do any good to the industry given the current situation with the Covid-19 pandemic. The buying sentiment once the lockdown period is lifted is likely to be low and consumers will be cautious in spending particularly on luxury/big-ticket items thereby not meeting the desired objective to clear the BS-IV inventory with the dealers, it added.
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