May 2020 sales: Tractor segment showing faster recovery in lockdown

M&M (Tractors segment) reported 2% growth in domestic volumes. The recovery is much faster than expectation and is likely to continue going forward. OEMs likely to log ~50% utilisation levels in June, with rural focussed players doing better; Escorts top pick.

By:June 8, 2020 10:30 AM

May sales declined by 70%-90% y-o-y (ex tractors) for all OEMs even as they started opening their plants and dealerships gradually towards the second half of May. As supply chains are re-established and demand recovers gradually we expect June to be near 50% utilisation levels for most OEMs and rural focused companies to show relative outperformance. Tractor segment beat expectation comprehensively with Escorts reporting only 0.5% y-o-y decline in its domestic sales while Mahindra saw 2% growth. We expect tractors to lead the recovery in the coming few months. Escorts remains our top pick and we expect a faster recovery for Maruti, Eicher Motors and Hero MotoCorp.

2W/3W segment
HeroMotoCorp reported sales de-growth of 83% (y-o-y) with its scooter segment declining 85% y-o-y. Company has opened all its plants and its retail sales and enquiries have been promising especially in rural areas. TVS motors declined by 81% (y-o-y) with 3W declining 79%. Exports was also down by 78% on y-o-y basis. We expect it to face difficulty in protecting market share and conserving cash relative to its larger peers. Eicher Motors (2W) sales de-grew by 69% y-o-y ahead of our expectation of 80%+ decline. Its strong brand and niche portfolio might surprise positively going ahead.

PV segment
Maruti Suzuki reported a 86% decrease in total sales on a y-o-y basis with its exports declining by 49%. Their plants have opened in the second half of May. A gradual recovery is expected in June as 80-90% dealerships become operational. Retail and service enquiries have seen an uptick for the company. M&M (PV segment) sales declined by 81% y-o-y. They have opened 70% dealerships and retail sales have begun. They are seeing initial traction for SCV and SUV brands such as Bolero and Scorpio.

CV segment
Ashok Leyland sales declined by 81% y-o-y. Its MHCV segment declined by 97% as demand for CV is non existent at the moment. Its LCV segment showed some pickup with decline of 73% y-o-y. We expect CV industry to continue to be under pressure due to BSVI led price increase and lack of demand drivers. VECV reported an 86% decline in sales in May. All its plants and most dealerships have opened in late May.

Tractor segment
M&M (Tractors segment) reported a 1% decline y-o-y in May with domestic volumes surprising with 2% growth. The recovery is much faster than expectation and is likely to continue going forward due to robust Rabi production, good price realisations and forecast of a normal monsoon. Escorts sales fell by 3% y-o-y while its domestic sales declined by only 0.5%. Its exports was down 60% but we expect fast recovery in the same and expect domestic momentum to carry owing to favourable industry factors.

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