Automakers are set to announce their February volumes on Tuesday. The woes on chip constraints have eased sequentially and this is likely to bode well for the passenger vehicle (PV) segment. With the opening up of offices, growth in demand might be seen on account of increasing focus on personal mobility. Akin to the trends seen in the third quarter and January, growth in export volumes is expected to offset lower domestic demand on a year-on-year (y-o-y) basis.
Analysts from Nomura Financial Advisory and Securities (India) Pvt. Ltd estimate Maruti Suzuki India Ltd’s domestic PV volumes to be down by about 7% y-o-y but overall volumes are foreseen to remain flattish y-o-y as higher exports would compensate. On the other hand, Tata Motors Ltd domestic PV volumes is expected to be up by 47% y-o-y.
Robust e-commerce growth would keep the demand on the higher side for commercial vehicles (CVs). “We expect domestic volumes to grow by 90% y-o-y for Mahindra and Mahindra Ltd (M&M), 2% for Tata Motors and 1% for Ashok Leyland Ltd. Robust growth for M&M is due to the low base and improving chip supplies for light commercial vehicles" said analysts at Emkay Global Financial Services Ltd in a report.
Meanwhile, tractors and two-wheeler volumes are likely to decline. The two-wheeler sales are yet to recover from muted demand. Also, chip shortage is impacting the dispatch of premium motorcycles. Analysts at Jefferies India Pvt. Ltd estimate Bajaj Auto Ltd volumes to fall by 2% y-o-y, TVS Motor Co. Ltd volumes by 9% y-o-y and Hero MotoCorp Ltd’s volumes by 19% y-o-y. Having said that, volumes are expected to show an increase on a sequential basis.
Due to the high base of last year, Emkay expects the domestic tractor volumes to fall by 30% y-o-y for M&M and 35% y-o-y for Escorts Ltd.
To be sure, increasing fuel prices would remain a concern for the sector going forward. “We believe a potential rise in fuel prices in March-22 could increase downside risks to our estimates" added the Nomura analysts.
As such, the delay in recovery in demand in the 2W segment poses a worry for investors. As analysts from Motilal Oswal Financial Services Ltd said, “While easing semiconductor supplies are boosting PV retails, the 2W segment is yet to recover amid the high cost of ownership. We prefer 4Ws over 2Ws on the back of strong demand and offer a stable competitive environment."
