Automobile: Some signs of recovery in Delhi/NCR

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Published: September 23, 2019 1:20:36 AM

While inquiries have risen for 2W/PVs, MHCVs continue to feel pinch; limited pre-buy expected across segments

Purchase is being deferred in anticipation of a GST cut.Purchase is being deferred in anticipation of a GST cut.

We conducted extensive checks with our channel partners (PV/2W/CVs) in the Delhi NCR region to gauge the trends evolving at the ground level. Key highlights:

o August turned out to be the worst sales month in many years for most OEMs.
o Inquiries have increased in 2W/PV segments, but conversion remains a challenge with customers clearly deferring buying decisions in anticipation of a GST cut and/or higher discounts before the BS6 implementation.
o CVs continue feeling the pinch of lower availability of freight and excess capacity, which is leading to weak demand despite very high discounts.
o Inventory has been brought down across segments due to production cuts by OEMs but still remains higher than normal.

Purchase is being deferred in anticipation of a GST cut. Inquiries have increased slightly compared to the last month, but dealers still expect a tepid festival season. Although customer negotiations for discounts have increased, sales have remained tepid. Discounts have risen by up to 20% YoY. Inventory has been brought down MoM to 35-45 days but will likely go up again in Sep’19 ahead of the festive season. On financing, the rejection rates have normalised after increasing temporarily over the last six months. 2W dealers do not expect strong pre-buy ahead of BS6.

Passenger vehicles
Customers appear confused about how changes/regulations will take shape in the future. Also, buying decisions are being postponed due to expectations of a GST cut. Inquiries have increased marginally but conversions are still weak. Inventory levels are high at 35-45 days. None of the dealers we interacted with expect any material pre-buying. MSIL’s XL6 initial response has been lukewarm due to high competition. While Hyundai’s Venue is off to a good start, Nios has begun on a weak note.

Commercial vehicles
TheM&HCV segment is under pressure, but LCV, ICV and mining vehicles are performing relatively better. Dealers do not expect a demand recovery in M&HCVs until current under-utilisation of 25% is addressed. Average discount among M&HCVs is around 15%, where discounting in SCVs/MCVs is lower than HCVs. However, despite higher discounts, demand remains very weak. Although absolute inventory is down by ~40%, it still remains as high as 60-70 days at a few dealerships. Dealers expect limited pre-buying before the launch of BS6.

Valuation and view
Despite near-term headwinds, our preference remains for PVs (over CVs/2Ws) as they will likely be least impacted by BS-6 transition and face less risk of EVs and competition, which in turn will reflect in earnings growth. Our top picks in autos are MSIL and MSS among large caps, and AL and ENDU among midcaps.

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