Auto sales may get back on track in Q2

Mumbai: Sales volumes of the auto industry likely to recover from Q2FY22 due to easing of lockdowns, pent-up demand and improving macros, expects Emkay Global.

The auto sales for the month of June are likely to be higher than May, but unlikely to reach normal levels due to staggered unlocking across states during the month. Still, two-wheeler volumes may be subdued, whereas CV volumes expected to be under pressure, the report says.

Vinnie Mehta, director general, Automotive Component Manufacturers' Association (ACMA), said: "Progressively things are improving and economy is also improving and so the industries. We believe that the current fiscal may witness the same year as that of the last year in terms of sales or a little bit higher."

The research firm is positive on the automobile sector underpinned by expectations of a strong cyclical upturn, that may last for at least three years. The top picks among OEMs are Tata Motors (TP: Rs410), Ashok Leyland (TP: Rs155) and Eicher Motors (TP: Rs3,180). In Ancillaries, Motherson Sumi (TP: Rs325) and Apollo Tyres (TP: Rs290), the report says.

Good monsoon, MSP hike are likely to support tractor volumes. Lockdowns and severe pandemic impacted volume performance in May'21, but channel checks indicate positive growth in Jun'21. Customer sentiments have been supported by enhanced crop procurement by government, expectations of good monsoon and moderate MSP hikes for Kharif crops. Domestic volumes may grow 23 per cent YoY for M&M and 6 per cent YoY for Escorts. M&M's growth is likely to be higher due to a favourable base.

PV volume also expected to improve. The PV industry volumes should improve, due to a healthy order-book and lower dealer inventories (2-3 weeks vs. normal level of 4 weeks). The research team compared volumes with Jun'19 numbers. Two-year CAGR for domestic PV volume is estimated to be 31 per cent for Tata Motors and 1 per cent for Maruti Suzuki, while M&M could see a 5 per cent decline.

However, two-wheeler volumes may be subdued. The 2-wheeler segment's volumes are expected to be subdued as the second wave of pandemic has impacted customer sentiment, especially in the case of business community and low-income categories.