Here's How Bad May Is Estimated To Be For Auto Firms

India’s automakers saw sales slump in May as several states imposed local lockdowns and companies suspended manufacturing amid a severe second wave of Covid-19 infections.

Factory-gate shipments of passenger cars, two-wheelers and commercial vehicles tumbled in the range of 14-73% month-on-month in May, according to data compiled from the reports of three brokerages — Dolat Capital, Emkay Global, and Motilal Oswal.

Shipment of automobiles over the year earlier is not comparable because of a low base caused by a nationwide lockdown to contain the first wave of the pandemic.

Since then up until March, sales gradually picked up as economic activities resumed, demand rose on preference for personal mobility and festive push. But the second wave of the virus stalled the nascent recovery as several states announced fresh lockdowns.

“States with complete lockdowns represent 50-60% of volumes across segments. In addition, there are partial lockdowns in the remaining states,” analysts at Emkay Global said in a report.

The mounting infections also prompted automakers such as Maruti Suzuki India Ltd., Hero MotoCorp Ltd., Escorts Ltd. and Eicher Motors Ltd. to shut down plants in a staggered manner to mitigate the high inventory levels at dealerships, lowering production.

Among the segments, two-wheelers were hit the hardest. BloombergQuint had earlier reported that the fresh lockdowns are going to be more punishing for the two-wheeler dealers. The panicked owners of the outlets have turned to the makers of scooters and motorbikes for help.

According to Dolat Capital, retail sales of two-wheelers are likely to decline 50-60% month-on-month in May. Two-wheeler inventory has piled up to six to eight weeks, Abhishek Jain and Kripashankar Maurya, analysts at the brokerage, said in a note.

The analysts, however, said premium motorcycles were expected to outperform the entry-level segment, and export momentum would remain strong.

Commercial vehicles, too, would face pressure because of lower freight availability, and as truck movements were hit across the country amid the second wave.

“Their (truck) operations have been impacted due to human resource disruptions to staff, labour movement, finance representatives, etc., affecting 50-70% of retail sales month-on-month,” Jinesh Gandhi and Vipul Agrawal, research analysts at Motilal Oswal said. The absence of a moratorium on term loan EMI payments from the government has also pushed dealers to minimise inventory, adversely impacting the viability of transporters.

Volumes of tractors, which recovered ahead of other segments from the Covid-19 disruptions during the first wave on account of improved rural sentiment, are likely to fall by more than 30-35% over the preceding month in May.

Passenger vehicle segment, however, will be the least impacted because of a healthy order book and low inventory level amid supply-chain constraints.

Outlook

Brokerages expect a strong pent-up demand after the restrictions are lifted. Also, they see an increase in pace of vaccination to aid recovery from June-end.

• Demand for passenger vehicles, according to Motilal Oswal, is expected to resume once lockdowns are lifted. That’s because their inventory levels are already below normal, of less than 30 days with a waiting period of 6-8 weeks in top-selling models, it said.
• Two-wheeler demand to see near-term headwinds due to increasing inventory and weak rural sentiments.
• Commercial vehicle dealers are optimistic about a strong recovery on the back of good infrastructure demand and likely restructuring of loans to transporters by financiers, Motilal Oswal said.
• For the tractor segment, analysts expect FY22 volumes to remain under pressure as the second Covid-19 wave dampened consumption and spends in the nation’s hinterland.
• “Household savings are hit badly due to higher spend on medical expenses, and base effect,” Dolat Capital said, adding that pre-monsoon rainfall and high food grain prices will help in rural demand recovery.