Motown Diaries: Navratri sales likely to be lower than expected; expect October to be flat

NEW DELHI: Automakers have apparently failed to make the most of the festive season as demand remained muted during Navratri, dashing hopes of strong recovery in sales volume, said analysts.

Sales of two-wheelers (2Ws) may decline in single digit in October, while auto companies are likely to report flat sales for passenger vehicles (PVs). However, commercial vehicles (CVs), which were the worst affected segment due to the pandemic, showed signs of recovery.

“Interactions with channel partners indicate muted demand during Navratri with 2Ws witnessing a flat to 3-5 per cent decline, while PVs sales are flat to 5 per cent up YoY. This was led by absence of higher discounts, especially in PVs, while for 2Ws, the same were higher for scooters and premium motorcycles,” said Deep Shah, an analyst at Prabhudas Lilladher.

He added that the rural areas continued to support auto demand, while urban areas lagged. Demand across rural, tier-2 and 3 cities was more profound as sales grew by 8-10 per cent YoY against a decline of 5-10 per cent in metros and Tier-1 cities.

Auto industry is coming out of one of the worst periods after the lockdown during which it saw zero monthly sales for the first time ever. In September, most automakers reported good growth in volume and expected that October would be better.

Despite the initial slowdown, that optimism has not died down yet and many believe demand will pick up eventually. “This festive season is very crucial as it will give more clarity on demand recovery post the lockdown. Though the festive season saw a slow start, the market is optimistic about ending it with flat-to-single-digit growth,” said Jinesh Gandhi, Research Analyst at Motilal Oswal.

He said the current 2W inventory at 40-60 days is in line with expected demand for the remaining festive season; PV inventory is also at a comfortable level of 25-35 days and inquiries are at par with last year.

Thanks to this inventory refilling for anticipated festive demand, wholesales would be higher than retail for the month. Overall, Motilal Oswal expects wholesale volumes to grow 17.5 per cent for 2Ws and 15 per cent for PVs due to sustained demand and inventory refilling.

Decline in CVs (excluding Tata Motors) was restricted to 6.4 per cent YoY, driven by 18 per cent growth in LCVs and 12 per cent YoY decline in medium and heavy commercial vehicles (M&HCVs). Wholesale volumes for tractors should be flat YoY due to supply side constraints.

“While festive season performance has been a mixed bag so far, strong dealer sentiment suggests better performance in November. Valuations are reflecting recovery from H2FY21, leaving limited margin for safety for any negative,” Gandhi said.

He prefers M&M and Hero MotoCorps among automakers and Motherson Sumi Systems and Endurance Technologies. Similarly, Shah of Prabhudas is bullish on M&M (Target: Rs 703) and Ashok Leyland (Rs 95).