Auto sales in May might have been hit by lockdown, double-digit decline seen across segments


Automobile sales are feared to have dipped in May, thanks to the second wave of COVID -led lockdowns in key states and restrictions in many states.

Auto companies announce their monthly sales data at the start of every month. The sales numbers for the month of May will be declared on June 1-2.

Experts largely fear double-digit decline across segments, especially in the two-wheeler and commercial vehicles (CV) space, while the impact on tractors and the passenger vehicle (PV) segments could be lesser.

The major impact of the second COVID wave was seen in rural areas, leading to a fall in tractor sales. Postponement of buy orders by transporters is likely to hit the CV segment, according to experts. Year-on-year (YoY) volumes are not comparable as there was a low base in April, which was hit by the first wave of COVID-led lockdowns.

The fast-rising COVID cases finally peaked out in the first week of May after crossing the 4-lakh-mark. It is at 1.6 lakh cases per day at the time of publishing this report.

As a result, several companies, including original equipment manufacturers (OEMs) advanced their maintenance shutdowns and merged the same with ongoing lockdowns in April-May 2021.

“A double-digit decline is expected across segments. Tractors and passenger vehicles should see a lower decline in comparison with two-wheelers and CVs. States with complete lockdowns represent 50-60 percent of volumes across segments. In addition, there are partial lockdowns in the remaining states,” said Emkay Global.

Motilal Oswal said, “Except for tractors, inquiries were significantly lower than normal levels. While a strong order book and ongoing preference for personal mobility would support PVs, a strong demand for two-wheelers seems unlikely on high inventory in the system and the severe impact of the second COVID wave on rural and semi-urban markets.”

The brokerage further said that interactions with leading industry channel partners reflect optimism regarding a recovery, once the lockdown is lifted.

“In May 2021, two-wheeler demand continued to remain subdued, with dealer inventory at 30-60 days. Demand momentum for PVs is expected to resume once the lockdown is lifted as inventory levels are below normal (less than 30 days), with a waiting period of 6-8 weeks in fast-selling models,” Motilal Oswal said.

“Demand for medium & heavy commercial vehicles (M&HCVs) remains strong in the infrastructure segment (considering inquiries in the current market), while demand in the cargo segment has slowed down. Tractor demand has largely sustained on the agriculture side, but commercial demand has slowed down,” the brokerage added.

Recovery in demand, post easing of lockdown

Experts largely look confident about a recovery in automobile sales from the second quarter of FY22 onwards, on expectations of easing of lockdown restrictions and pent-up demand.

“We expect a swift recovery in volumes from Q2FY22 as restrictions are likely to be lifted and pent-up demand opens up. Our positive view on the sector is underpinned by expectations of a strong cyclical upturn, which is expected to last at least three years,” said Emkay Global.

Top picks

Emkay’s top picks among OEMs are Tata Motors, Ashok Leyland, Maruti Suzuki, and Eicher Motors, while Motilal Oswal prefers four-wheelers to two-wheelers as Pvs are the least impacted segment currently and offers a stable competitive environment. It expects commercial vehicle cycle recovery to sustain and gain momentum.

Motilal Oswal prefers companies with higher visibility in terms of a demand recovery, a strong competitive positioning, margin drivers, and balance sheet strength.

“Maruti Suzuki and M&M are our top OEM picks. Tata Motors is our preferred play on global passenger vehicles,” said the brokerage.

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