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Auto firms likely to have negative news on Dec sales on New Year’s Day

NEW DELHI: Seasonality, year-end shutdowns and inventory management in the runup to BS-VI transition will likely result in another tepid month for auto companies when they report their monthly sales numbers for December on January 1, 2020. The numbers are likely to suggest that the slowdown that has engulfed the sector for almost a year now is not over yet, analysts said.

On a year-on-year basis, the picture isn’t good. Passenger vehicle (PV) sales are likely to be tepid. While Nomura estimates a marginal 2 per cent year-on-year increase in PV sales, Prabhudas Lilladher has projected a 5-6 per cent drop.

Two-wheeler (2W) sales may decline 2 per cent. However, the fall in sales of commercial vehicles is projected to be the higher at 30 per cent.

“With the impending price hikes of 13-15 per cent for BS-VI models coming in from April, 2020, demand headwinds should continue in FY21F for the two-wheeler segment,” Nomura said in a report.

Brokerage Prabhudas Lilladher sees some pre-buying in CVs in Q4FY20 but expects demand to remain under pressure till H1 of FY21. A significant price hike of 15-20 per cent in CVs is on the cards for BS-VI models.

Brokerages have a mixed view on Maruti Suzuki. Nomura expects the industry leader to post a 6 per cent year-on-year (YoY) rise in sales while Prabhudas Lilladher projects it to post a 2 per cent decline. Nirmal Bang Securities expects a sequential decline of 0.1 per cent for the auto major due to the year-end shutdown. However, the brokerage expects strong consumer offers to help drive higher retail volume.

Maruti shares fell 0.65 per cent in Mumbai trading to end the year at Rs 7,367 on Tuesday in a weak market that saw the benchmark Sensex tank 304 points.

Overall sales for Mahindra and Mahindra (M&M) are projected to decline 2-8 per cent with a steeper fall seen in tractor sales. Nirmal Bang expects M&M’s tractor volumes to drop 5 per cent to 16,534 while Nomura pegs December sales figure to come in at 16,700, down 4 per cent. The stock fell over 1 per cent in Tuesday’s trade to Rs 531.

Tata Motors is most likely to continue the trend of rapid decline in PV and CV sales. The projections are for 41-33 per cent drop in PV sales and 32-22 per cent YoY decline in overall sales. “High double-digit decline in CVs is likely to continue due to high inventory, economic slowdown, limited disbursals for infra projects, excess fleet capacity and tepid freight rates,” said Nirmal Bang. The stock bucked the trend in the auto pocket to close nearly 1 per cent higher at Rs 185 on Tuesday.

Ashok Leyland is projected to post a 28-38 per cent YoY decline in December volumes. ALL shares fell about half-a-per cent to Rs 81 in Mumbai trading.

Brokerages expect Bajaj Auto to fare better than peers. Prabhudas Lilladher projects a 2.3 per cent jump in December sales while Nirmal Bang sees a 3.4 per cent rise. Nomura pegs growth in Bajaj Auto sales at 10.9 per cent. The stock dropped over 2 per cent in Mumbai trading to close the year at Rs 3,182.

Hero MotoCorp’s sales are likely to fall 4-15 per cent, while those of TVS may dip 3.5-11 per cent. The stock slipped one-and-a-half per cent to Rs 2,443.

Nirmal Bang expects Eicher Motors to post a 5 per cent decline in sales of Royal Enfield bullets and a 40 per cent decline in VECV volume. Prabhudas Lilladher expects a marginal dip of just 0.5 per cent in Royal Enfield sales, while Nomura expects them to rise 3 per cent. The stock fell over 1 per cent to Rs 2,251 on Tuesday.

“We do not see growth in auto demand anytime soon. Consumer sentiment is not good. Auto is a good business going through a down cycle. We will wait for some signs of growth coming in before we buy into the auto or auto ancillary pack,” said Amit Jeswani, CIO, Stallion Asset.

Source: Economic Times