The automobile sector is likely to see a mixed trend in most segments in May sales numbers with the two-wheeler (2W) segment expected to see a mild uptick.
While the 2W growth may be supported by strong marriage season demand in the North and East regions; passenger vehicles' (PV) volumes may gain due to the marginal improvement in production/dispatches. Brokerage firms pointed out that the commercial vehicle (CV) volumes may see an uptrend on improved haulage demand.
However, tractor volumes may be lower sequentially due to a high base (as Apr'22 witnessed some advance purchases due to anticipated price hikes on May 1, 2022) and there is some hit on farmer sentiments due to the reduction in wheat crop realizations on account of government restrictions on exports.
"2W volumes are expected to improve (month-on-month) MoM due to marriage-related demand and higher demand from customers in the salaried segment. Student segment enquiries are also picking up, and demand is expected to pan out over the next two months," said brokerage firm Emkay Global.
Emkay expects domestic volumes to grow by 29 percent MoM for Bajaj Auto, 12 percent for Hero MotoCorp, 5 percent for TVS Motors and 1 percent for Royal Enfield. Bajaj Auto had a low base in April 2022 due to supply issues, Emkay pointed out.
"CVs should remain in an uptrend, owing to better demand for both passenger and cargo vehicles. We expect domestic CV volumes to grow by 4 percent MoM for Tata Motors (Domestic CV), 4 percent for Ashok Leyland (MHCV), 3 percent for Eicher Motors CV and 3 percent for Mahindra & Mahindra," said Emkay.
Besides, Emkay said PVs should witness MoM growth on improved production/dispatches. Among OEMs, the brokerage firm expects domestic volumes to grow by 9 percent MoM for Mahindra & Mahindra and 1 percent for Tata Motors and 1 percent for Maruti Suzuki. Vehicle discounts have increased MoM, though they remain significantly lower than the elevated levels seen in the past.
Tractor volumes are likely to decline MoM due to the high-base effect and hit on farmer sentiments due to lower crop realizations. Emkay expects domestic tractor volumes to decline by 15 percent for MM and 5 percent for Escorts.
As per the estimates of Motilal Oswal Financial Services, there may be a slow recovery in 2Ws even after the good Rabi harvesting. PV dealers remain upbeat on strong demand but supply chain issue impacts supplies from OEMs adversely, Motilal Oswal said.
"M&HCV demand continues to gain from the rise in infrastructure activities and high capacity utilization and expects to see the benefit of the recent fuel price cut in the coming months," said the brokerage firm.
"While easing semiconductor supplies boost PV retail, CV demand momentum is sustaining. The 2W segment is showing early signs of recovery. We prefer 4Ws over 2Ws, aided by strong demand and a stable competitive environment," the brokerage firm added. Motilal Oswal expects the CV cycle to maintain its momentum.
"We prefer companies with: (a) higher visibility in terms of demand recovery, (b) a strong competitive positioning, (c) margin drivers, and (d) balance sheet strength. Maruti Suzuki and Ashok Leyland are our top OEM picks. Among auto component stocks, we prefer Bharat Forge and Apollo Tyres. We also like Tata Motors as a play on the global PV cycle," said Motilal Oswal.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.