Sales were marginally lower as BS4 inventory is almost exhausted and customers are postponing purchases.
Our interaction with industry channel partners indicates BS4 inventory for PVs and CVs is almost cleared, but some 2W BS4 inventory is stuck because of lockdown. Wholesales are expected to decline substantially in March for all OEMs due to lockdown (many plants shut from 21st March). For 2Ws, inquiries were there for BS4 models, but CVs have seen a significant decline in inquiries after BS4 inventory got exhausted.
Demand for PVs was negative. Hyundai is working aggressively on new diesel models to gain market share of MSIL’s diesel portfolio. CV sales continued to decline with low demand visibility from construction activities and financiers playing cautious.
In Mar’20, wholesale volumes are estimated to fall by ~37%/~40%/ ~68% y-o-y for 2Ws/PVs/CVs due to lockdown and BS6 transition. Tractors volumes are expected to fall by ~16% y-o-y.
2Ws: Demand for BS4 models had improved w.r.t previous month. System inventory stood at 30-35 days, including 10-12 days BS4 inventory, before lockdown. We expect wholesales to decline by 33% y-o-y for BJAUT , 42% for TVSL, 41% for HMCL and 27% for RE.
PVs: Sales were marginally lower as BS4 inventory is almost exhausted and customers are postponing purchases. Volumes are expected to decline ~33% for MSIL. Wholesales are expected to decline ~59% y-o-y for M&M’s UV (incl pick-ups) and ~52% for TTMT’s PV due to lockdown and BS6 transition.
CVs: Some weakness was expected in CVs post BS4 pre-buying, but the situation will worsen with lockdown. We expect CV wholesales to decline by ~68% for TTMT (-71% for M&HCVs) and ~66% y-o-y for AL (-73% for M&HCVs).
Valuation & view: Auto industry was expected to recover from 2HFY21 after clearing the last hurdle of BS6 transition. However, Covid-19 has come as an additional challenge. We have seen a sharp correction in the auto/auto component stock prices. Valuations appear attractive, but given the uncertain environment, we prefer stocks offering higher visibility of demand recovery, better competitive positioning, scope of higher operating leverage and strong balance sheet. We prefer EIM and MSIL among large caps, and ENDU among mid-caps.