The auto sector’s sales momentum is expected to improve for the month of July on the back of a recovery in demand and ramp-up in production due to the upcoming festive season.
According to the auto preview report by Emkay Research, the channel checks indicate a positive momentum growth in sales for commercial vehicles (CVs), passenger vehicles’ (PVs) volumes should be higher, and 2-wheelers’ sales are likely to be better due to the ramp-up in production and upcoming festive season. However, it noted that tractor volumes are likely to decline due to a high base and uneven spread of the monsoons.
This can be seen in the performance of the auto index in July. The Nifty Auto surged around 7 percent, up from 1 percent in June.
In the past 1 month, all auto stocks have given positive returns. MRF rose the most, up 18 percent followed by Exide Industries, which rallied 16 percent. Meanwhile, Bharat Forge, Tube Invest, Bosch and Eicher Motors also added over 10 percent each during the month. Tata Motors also jumped 9 percent while TVS Motor added 7 percent. M&M, Bajaj Auto, Maruti Suzuki, Hero Moto and Ashok Leyland also gained between 1 to 6 percent in this time.
However, the rising prices and monsoon deficit remains a concern.
The brokerage firm has retained a positive view on the auto sector. Among OEMs pack, they are positive on M&M, Tata Motors, Maruti Suzuki, Ashok Leyland and Escorts.
According to Emkay, Commercial vehicles should remain in an uptrend, with the robust growth in passenger and cargo segments. E-way bill trends indicate better freight availability compared with last year, it added.
Emkay expects a positive growth at 58 percent YoY for Ashok Leyland, 55 percent for Eicher Motor-Volve Eicher Commercial Vehicle, 42 percent for Tata Motors and 13 percent for M&M in the domestic market.
Meanwhile, passenger vehicles should witness robust growth on a large order book and production ramp-up, noted the brokerage.
Among OEMs, the brokerage house estimates domestic volumes to grow by 49 percent YoY for Tata Motors, 28 percent for M&M and 8 percent for Maruti Suzuki. Vehicle discounts have increased MoM but remain significantly lower than the elevated levels seen in the past, it added.
Two-Wheelers volumes are also expected to improve due to higher production and inventory build-up with dealers, predicted Emkay. It expects domestic volumes to improve by 35 percent for Eicher Motor-Royal Enfield, 6 percent for TVS Motor, 6 percent for Hero Moto Corp and 2 percent for Bajaj Auto.
However, for tractors, the volumes are likely to decline due to a high base and uneven spread of the monsoons. Emkay expects a decline in domestic volumes - 13 percent for M&M and 16 percent for Escorts.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.