Auto Sector Analysis

A disappointing May Month Results for the sector, So what next?? Lets review

We will go through Passenger vehicles, Commercial Vehicles, 2 Wheeler’s & Tractors, Domestic passenger vehicle sales has declined by 80-90% year on year in May 2020, Production is slightly picking up but there are concerns on limited workforce as we all know we are facing challenges of migrant workers leaving major work locations, If Covid doesn’t get into a second wave then we can expect normalcy in workforce in 3-4 months, Supply chain constrains can only get better if Unlock prevails

Commercial vehicle segment is the worst hit segment with a 85-90% decline in sales, Reason behind obviously is standstill economic activity, No significant demand, There is low fleet utilization(Fleet utilization extend to which available commercial vehicles are used, as you know most of them are in standstill

Domestic 2 wheeler volume is down by 70-85%, Sales primarily are from semi urban & rural areas but urban has no significant demand, Again the rural demand is completely on occurrence of Normal Monsoon if it occurs, A slight hope is 2 wheeler companies are cash rich and have less operating expense so they definitely have a better survival chance, H2 is a festive season so expectation will be on that also

Only segment that has saved some respect in Auto sector is Tractors, Mahindra & Mahindra Tractor division sector has show a 2% growth while escorts reports a .5% decline, Positive rural sentiments and reverse migration of labors are fulfilling the rural labor demands

If we look at what top management has to say

M&M has said that 75% operations have resumed and they are now getting some good traction out of their brands Bolero & Scorpio, Govt focus on Agri sector and expectation of a normal monsoon could be a favorable situation for Tractor business

Eicher Motors have resumed their operations partially & gradually

Hero Motocorp has resumed its operations in all 6 manufacturing facilities with limited production

Bajaj Auto is expecting domestic 2 wheeler demand to increase

Coming to Sales summary Maruti Suzuki in May 2019 had sold 1,25,552 domestic vehicles where in this year May 2020 they ended up selling 13,888 with a fall of around 89% in their sales, If we look at tractor sales M&M is able to sell 24,017 tractors in May-2020 as against 23,539 in May-19 with an increase of 2%

Exports of Maruti Suzuki are down by 49%, Maruti Suzuki can be seen as a beneficiary as there is a shift towards personal mobility on account of Covid, Also they have strong entry range, Dealers have reported high enquiries coming in for entry level cars, Maruti Suzuki is also partnered with ICICI Bank for attractive finance schemes

Eicher motors the manufacturers of Royal Enfield bike have decrease the down payment to 20,000/- and has reported a decent footfall 40% of Normal pre covid level, Royal enfield has also taken a price hike of 2,500/-

Signing off

Having worked several years into Life Insurance, Health Insurance, Mutual Funds & Closely with people into financial planning i am now putting my first step in investment advisory

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