Analysts See Signs Of Recovery For Commercial Vehicles, Tractors
At a time automakers shipped fewer vehicles from their factories because of supply-chain issues, two segments bucked the trend: tractors and commercial vehicles.
Factory-gate shipments of passenger cars fell over the preceding month in September, while two-wheeler sales picked up marginally, according to estimates compiled by BloombergQuint from four brokerages— Prabhudas Lilladher, Emkay Global, Nirmal Bang, and Motilal Oswal.
“Passenger vehicle demand remains strong and commercial vehicle demand is showing good signs of recovery,” Motilal Oswal said in a note. There’s a sequential improvement in demand for truck with increased freight availability and a recovery in infrastructure demand as the monsoon recedes, it said.
“Tractor demand is largely stable, while two-wheeler demand is yet to recover,” Motilal Oswal said.
Construction demand, according to Prabhudas Lilladher, helped tractor makers in September despite erratic monsoons. “Our interaction with leading channel partners indicates tractor wholesale year-on-year growth has moderated in September 2021 on a high base and seasonal factors,” it said, adding demand remained stable over the previous month.
But lack of chips, key for sensors, engine, battery controllers and infotainment units in vehicles, continued to weigh on passenger carmakers. The crisis began in December last year as sales of laptops and mobile phones to televisions surged with people working remotely during the Covid-19 pandemic.
That hurt the ability of Indian automakers, emerging from the second wave of disruption that led to dealership closures and staggered shutdowns, to keep up with the demand for personal mobility arising out of fear of contracting the virus. Dealers, too, are forced to enter the festival period, crucial for making up for lost sales, with the lowest seasonal inventory.
“For passenger vehicles, semiconductor shortage still remains a concern and is dampening dealers’ hopes, as inventory days will be down to 10-15 days by September 2021-end,” Prabhudas Lilladher said. It expects most dealers to be stocked out before Diwali if production issue doesn’t resolve.
Sales conversion for two-wheelers remains low even as dispatches increased over the preceding month in September.
According to Motilal Oswal, higher fuel prices are restricting the pace of recovery for two-wheelers, and are driving up interest in e-scooters, supported by subsidies. Chip shortage, too, is impacting motorcycles in the above 150 cc segment.
Two-wheeler dispatches, baring Royal Enfield's, rose between 3% and 9% in September, the analyst estimates showed. Royal Enfield sales fell 22%.
Lower demand led to an inventory pile-up.
Hero MotoCorp Ltd., the nation’s largest two-wheeler maker, has an eight- to 12-week inventory, while TVS Motor Co. and Bajaj Auto Ltd. dealerships are operating at six to eight weeks, Nirmal Bang said. Ganesh Chaturthi festival, the brokerage said, has not been as per expectations.
Commercial vehicles: While demand conversions have been affected because of cash flow issues and subdued sentiment amid rising fuel costs, Nirmal Bang sees a strong case for volume rebound as these constraints are addressed in the coming months.
Passenger vehicles: Motilal Oswal said the semiconductor availability issues may start to resolve from October 2021 with the resumption of chip manufacturing factories in Malaysia.
Two-wheelers: Prabhudas Lilladher said the segment’s recovery will follow the rebound for four-wheelers but with a lag of three-four months.
Tractor segment: According to Nirmal Bang, since the underlying rural sentiment is holding reasonably well, it should support volumes.