Automobile monthly sales are expected to remain subdued in May 2021, marred by extension of lockdowns from most states to break the chain of COVID-19 infections, depending upon the severity of the cases in the respective states, top research firms conclude in their monthly report.
For the first time, monthly auto sales are not comparable either on a y-o-y basis or m-o-m basis.
“May ’21 volumes are likely to be hit by the second COVID-19 wave and lockdowns across states. We have weighed them against May ’19 numbers, and a double-digit decline is expected across segments. Tractors and passenger vehicles should see a lower decline in comparison with two-wheelers and commercial vehicles.” said research firm Emkay Global.
“Nonetheless, we expect a swift recovery in volumes from Q2FY22 due to easing of lockdowns and pent-up demand. Our positive view on the automobile sector is underpinned by expectations of a strong cyclical upturn, which is expected to last at least three years,” the research firm added.
Lockdowns have disrupted supply chains in the Pune-Delhi route since the last week of April, while restrictions in South India further disrupted supply situations from mid-May.
According to an estimate, states with complete lockdowns represent 50-60% of volumes across segments. In addition, there are partial lockdowns in the remaining states. On the positive side, agricultural field activities have not witnessed any obstruction due to the second wave. However, despite being considered an essential category, tractor volumes should be subdued on account of the severe impact of the pandemic in rural areas.
While the passenger vehicle volumes are expected to be in the slow lane, despite healthy order-books across most OEMs, the two-wheeler and commercial vehicle segment volumes remain weak.
Leading broking house service provider Share Khan said while OEMs continue to maintain robust production schedules with their respective suppliers and vendors, few OEMs have reduced Q1FY2022 guidance by 10%-20% due to the lockdown. However, OEMs remained optimistic for FY2022 growth, driven by strong underline demand, the timely arrival of the monsoon season, and government initiatives to increase vaccination drive in the country.
Automobile manufacturers such as Maruti Suzuki, Hero MotoCorp, Hyundai Motor India, and others have either stopped production at their factories or reduced output significantly. Some manufacturers such as Tata Motors and Bajaj Auto have continued with production, albeit with limited capacity.
However, in Tamil Nadu, there were some levels of production at several auto facilities. However, during the end of the month, due to workers agitation, the companies took a break of three to four days.
Analysts expect OEMs to register 30%-60% lower dispatches than average regular monthly sales in May, as far as domestic dispatches are concerned.
Exports are expected to continue to record strong momentum. Various OEMs assemble kits in export destinations and, thus, are less impacted to domestic production.
Outlook
- Rural demand is expected to recover strongly in southern and western India, given the timely arrival of monsoon season, higher reservoir levels, and higher Kharif sowing last year.
- Tractor sales are likely to pick up ahead of the summer crop.
- The sequential improvement in M&HCV sales will continue, driven by rising e-commerce, agriculture, infrastructure, and mining activities.
- Strong recovery is expected in the CV segment in FY2022 and FY2023, driven by an improvement in economic activities, a low-interest rate regime, and an improvement in financing availability.
- The bus and three-wheeler segments continue to remain under pressure due to the closure of schools, colleges, offices, and lower use of public transport.