Auto Rebound Continues Despite Supply-Chain Woes, Say Analysts
Automakers continued their sequential sales recovery, aided by a pick-up in economic activities and healthy demand amid supply-side constraints.
Factory-gate shipments of almost all the automakers for March are expected to rise in the range of 3-20% over the previous month, data compiled from research reports of Motilal Oswal, Emkay Global, Dolat Capital and Prabhudas Lilladher showed.
Volumes are, however, not comparable year-on-year due to the low base on account of Covid-19 lockdown last year, and transition to stricter Bharat Stage VI norms.
Passenger vehicle sales remain the strongest, Deep Shah and Amber Shukla, analysts at Prabhudas Lilladher, said in a note. They expect a healthy sentiment as volumes are expected to grow, led by demand from north, central and south India.
“Retail volumes have surpassed pre-Covid level as both rural and urban demand grew 30-35% year-on-year and 10-15% year-on-year, respectively,” the analyst said.
Commercial vehicle volumes are expected to improve month-on-month due to improving freight availability and higher freight rates that is aiding the sentiments of the transporters.
The buoyancy in demand sentiment in commercial vehicles is led by 55-60% higher inquiries from construction activities due to increased demand, gradual pickup in tractor-trailer segment and improved demand for haulage, Shah and Shukla wrote.
Both commercial and passenger vehicle segments continue to face added pressure due to supply-chain disruption on the back of semiconductor shortage globally. This, on an average, is expected to lead an impact of 20-25% on overall volumes for the month in the two segments, according to Prabhudas Lilladher.
The report said while supply-chain disruption in the commercial vehicle segment is leading to a delivery lag of three to four weeks post booking. For passenger vehicles, this led to waiting periods for up to four to five months for vehicles like the Creta, and a minimum four to five weeks for Maruti Suzuki, it said.
Meanwhile, tractor wholesales continue their uptrend, aided by better retail sales and inventory stocking. Emkay global expects domestic volumes to grow 8% month-on-month for Escorts Ltd. and 7% for Mahindra & Mahindra Ltd. “Expectations of higher Rabi output and elevated crop prices are supporting rural customer sentiment,” the report said.
Two-wheeler demand, however, is expected to remain weak as the cost of ownership rose because of fuel inflation. This caused the inventory levels to rise to five to seven weeks from four to six weeks in the previous month, according to Prabhudas Lilladher.
Data compiled from four research reports showed that two-wheeler firms are expected to grow 3-6% over previous month in March.
Analysts at Emkay Global said while the demand is improving from salaried and business customers, it remains weak from students.
Automakers are increasingly looking to push more vehicles from their factories as they look to tide over the Covid-led slowdown in the industry.
Dolat Capital expects car volumes to be strong as retail sales have maintained positive momentum despite negligible discounts, helped by need-based buying.
For two-wheelers, Motilal Oswal expects some recovery in demand in the coming month due to expected cash flow from the sale of Rabi crop and beginning of the marriage season. Tractor wholesales are expected to grow on account of an abnormally low inventory, he said.