Teji Mandi: Positive momentum in February for auto sector

07:35 PM Feb 26, 2021 | Teji Mandi

A Motilal Oswal report suggests that auto companies are expected to report strong YoY growth in February'21. As per the channel check conducted by the brokerage house, all segments, except three-wheelers, are expected to benefit from the lower base of last year.

Wholesale volume for 2Ws is estimated to grow at 13% on an annual basis, largely driven by exports. The passenger vehicle category continues to face supply-side constraints. But, it is still expected to deliver 20% growth despite the industry.


Commercial Vehicles are expected to make a big comeback as volumes are likely to grow by 37%. Light CV (LCVs) segment is expected to outperform with 58% growth and Medium & Heavy CVs (M&HCV) by 17%. Wholesale volumes for Tractors are expected to grow by 27% YoY on robust demand.


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Trends in two-wheeler category :

Demand for Entry-level models remained subdued, whereas the Premium segment saw some recovery during February. As a result, inventory levels at dealers have gone up by 30-45 days. The manufacturers have increased discounts in the entry-level segment to push sales.

The report estimates Bajaj Auto to outperform the industry, primarily on account of its strong presence in the export market. The company is expected to deliver ~18.6% growth in wholesales with 6% growth in the domestic market. TVS, HeroMoto, and Royal Enfield are expected to grow at 14%, 10%, and 7.5% respectively.

Supply-side constraints for PVs :

Demand for passenger vehicles remained robust in February 2021. However, supply-side constraints are yet to normalize. As a result, dealers are facing difficulty in time-bound delivery to customers. The waiting period is currently running as high as 4-6 weeks in fast-selling models. The inventory also remains at a minimal level of less than 10 days. There is an increased interest in CNG-based models due to higher fuel prices.

Tata Motors is expected to outperform the market as the company's new launches are doing well. Volumes for Maruti Suzuki, M&M, and Tata Motors are expected to grow by ~13.4%/30%/120% during the month respectively.

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CVs making a big comeback :

The commercial vehicle market is picking up now after being slow to revival. Demand for M&HCVs from the Infrastructure segment remains strong. The Cargo segment is also recovering, albeit at a slower than expected pace. There is no price war among the manufacturers as discounts have fallen by 2-3% to 13-15% based on the demand condition.

Financiers have relaxed credit terms and increased loan to value ratio up to 85-90%. It has led to an increase in inquiries and conversions. LCV segment is expected to outperform with sustained growth momentum. Ashok Leyland is expected to benefit from new launches in this category. Ashok Leyland's wholesales growth is estimated at 21.7% YoY and that for Tata Motors is estimated at around 31% in February 2021.

Sustaining demand of Tractors:

Demand for tractors has sustained due to good rabi sowing and preference for farm mechanization. Commercial use of Tractors is also picking up. Dealers are holding lower inventory of around 10-30 days. We expect Tractor volumes to grow by 30%/18% YoY for M&M and Escorts due to higher demand.

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