Mr. Mustafa Nadeem, CEO, Epic Research
Data from the Society of Indian Automobile Manufacturers (SIAM) released on Tuesday revealed a decrease of 8.62 percent in total domestic sales compared to figures from May 2018. The slump was recorded across almost all automobile types, with passenger car sales declining by a significant 26.03 percent. In May 2019, 1,47,546 passenger cars were sold. The total passenger vehicle sales, including vans and utility vehicles, declined by 20.55 percent, with a total of 2,39,347 units sold.
This is a transition period for the Indian Auto sector. The auto sector is already passing through a rocky road due to slow down in the economy where BS VI is another headwind but Normalcy will return once Automakers will completely transit to BS VI norm and most probably the smooth road will begin in 2021. PV to be list impacted during the BS VI transition due to a limited cost increase for petrol PVs while two-wheelers and CV will be most impacted due to high-cost inflation. In the overall Automobile sector, we believe this will have an impact on the entire industry. The overall impact will be increasing in cost input for automakers. The increased cost will be passed onto the customer and hence this will affect both the top line and bottom line. The increased cost will affect the sales and profitability of automakers in the end. The operating margin will be reduced and That is why we are already seeing a slowdown in overall stocks and prices as well.
Automakers such as Maruti may be able to survive due to their dominance in overall space while in two-wheeler space companies like Bajaj Auto and Hero moto but all these companies may see a dip in their profitability and operating margin due to increased cost. Companies like Tata motors that are already seeing the worst period due to lower sales numbers, higher costs and lower operating margin may be suffering much more than their peers.
Stocks like Maruti, Bajaj Auto, Hero moto are still good if someone has a vision for the long term since this is a transition period there may be some pain but yes these are blue chips and will continue to create wealth.