Auto Sales Data for June 2020 - Angel Broking

Mr. Rajit Rajoriya, Equity Research Associate, Angel Broking Ltd.

Auto sales numbers for the month of June reported strong growth sequentially led by tractors and two wheelers. Due to the sudden lockdown companies reported almost zero sales in the month of April. While companies resumed operations partially in May, numbers were still very subdued with only the tractor segment reporting a decent set of numbers. However two wheelers and passenger vehicles (PV) segment also reported strong traction in June due to Government decision to open up the economy under Unlock 1.0.

Tractor segment reported robust set of numbers for June with Escorts leading the way with a 21% YoY growth in June while market leader Mahindra registered a growth of 10%. Growth was driven due to positive sentiments amongst farmers due to a bumper rabi crop, government support for agri initiatives which has led to better rural cash flows. We expect demand for tractors will continue to remain buoyant in the coming months.

In a non-farm space, as expected two wheelers was the best performing space given lower ticket size and greater exposure to rural and semi-urban regions. In the 2-wheeler space, Hero MotoCorp Ltd reported a 27% yoy de-growth in sales numbers to 4.5 lakh units, which was better than the 30-35% yoy drop in sales at TVS Motor Co Ltd and Eicher Motors Ltd (Royal Enfield). We remain positive on the two wheeler space and expect sales numbers to improve further in July given improvement in supply chain which was a constraining factor in the first half of June.

India's largest carmaker, Maruti Suzuki India Limited (MSIL) sales for mini cars reported a 44% yoy decline while sales for compact cars fell 58% yoy. Mahindra passenger car sales numbers were down by 57% yoy. With large urban areas expected to remain under some form of restrictions in the near future, we expect that the rural economy will lead the way, which will lead to a quicker recover in entry level vehicle sales. However a broad-based recovery can happen only when major urban centers fully recover and return to normalcy. In the PV space Maruti Suzuki is best placed to benefit from any recovery in demand given higher exposure to entry level cars.

While the commercial vehicle segment is the worst hit, Light commercial vehicles (LCV) are expected to do better in the coming months compared to Medium and heavy commercial vehicles (M&HCV). Tata Motors and Ashok Leyland both reported 90-92% yoy decline in MHCV volumes. However LCV has started to see a recovery led primarily by rising rural demand and movement of essential goods across the country. LCV sales volume of Ashok Leyland & M&M declined by 63% & 36% yoy respectively.

The past month proved to be quite cheerful for two-wheelers and tractor companies. While passenger vehicle and LCV sales are expected to improve gradually from here on, MHCV sales are expected to remain subdued for some time. We expect the tractor segment will continue to outperform the broader automobile space given strong growth visibility due to a buoyant rural economy. Two-wheeler companies operating at 90-95% of pre-covid levels gives hope for faster than expected recovery in the segment. Though PV demand are likely to face some headwinds due to deferment in discretionary spends, entry level cars are likely to see better traction due to shift towards personal mobility on account of covid-19 concerns. In the commercial vehicle space we expect LCVs will do better than the MHCV space.

Source : Equity Bulls

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