The majority of entry-level passenger vehicles customers and urban two-wheeler customers are purchasing vehicles for safety purposes, who otherwise may have avoided the purchase
Indian automobile sector set to witness further improvement in August over July following ease in the supply chain, strong rural and semi-urban markets sentiment and rise in preference for personal mobility. Passenger vehicles (PVs) clocked sales of 1, 82,779 units in July 2020, compared to 1, 90,115 units in July 2019. Two-wheeler sales came at 12, 81,354 units, against 15, 11,717 units, a decline of 15.24 per cent. SIAM in its statement said that the month of July was significantly better than the preceding months and it instilled some confidence into the industry. Many OEMs have registered improved sales vis-à-vis the past few months, and this brings back a sentiment of resolve to the sector. Analysts at research and brokerage firm Nirmal Bang say dispatches from OEMs are likely to improve sequentially on account of a further ramp-up in plant utilization levels following the gradual recovery in supply chain and labour availability.
Nifty Auto index rallies 77% since March
The Nifty Auto index has rallied 77 per cent since March 23, when the lockdown was imposed to contain the spread of coronavirus, as compared to a 55 per cent rise in Nifty 50 index. The brokerage firm added that semi-urban and rural markets are doing better but urban markets are also catching up fast amid higher demand at the lower end of the segments. The brokerage firm expects tractor sales to see 40 per cent YoY growth as demand continues to remain strong on strong rural sentiments. It also added that automotive sales are likely to witness gradual recovery, especially in rural portfolios amid supply constraints, this will be a positive for Mahindra & Mahindra stock. For Hero MotoCorp, it expects 5 per cent year-on-year rise on the back of strong demand in the entry-level segment and due to a low base. While for Eicher Motors, it expects Royal Enfield’s dispatches to increase sequentially on a gradual ramp-up of operations amid supply constraints. “Its enquiries and order book have reached pre-covid levels,” it added.
M&M, Eicher Motors, Motherson Sumi, Endurance Technologies
The majority of entry-level passenger vehicles customers and urban two-wheeler customers are purchasing vehicles for safety purposes, who otherwise may have avoided the purchase, says Motilal Oswal Financial Services. It also added that demand recovery has sustained on account of increasing preference for personal vehicles and high disposable incomes in the rural markets. The brokerage firm expects tractor volumes to grow 45 per cent on-year for both M&M and Escorts. Among large caps, the brokerage’s top picks are Mahindra & Mahindra and Eicher Motors. While from mid-caps, it prefers Motherson Sumi Systems and Endurance Technologies.
The firm highlighted that with multiple moving parts in the form of normalization of the supply side, consumer sentiment, availability of finance, and impact of BS6 cost inflation, demand normalization is the biggest monitorable.
Hero MotoCorp, Bajaj Auto
Axis Securities is bullish on Hero MotoCorp as the rural revival and down-trading in a rising price scenario works well for its motorcycle sales. The brokerage firm has maintained a ‘hold’ rating for Eicher Motors, on its strong franchise, long-term growth potential and a renewed focus on products. While it has upgraded its rating from ‘hold’ to ‘buy’ on Bajaj Auto, as the company is expected to fare well in the current environment on the back of its diversified portfolio mix and dual focus on entry and premium segment.
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