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September auto sales: Brokerages don't see reversal of fortunes of companies

Market leader Maruti Suzuki's volumes are likely to slide by 30 percent YoY, Sharekhan said.

September 30, 2019 / 09:09 PM IST
 
 
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The automobile sector is expected to continue to see double digit fall (in percentage term) in wholesales across its segments (except tractor) for September due to continued subdued demand.

The inauspicious Shraddh period and floods in select regions are also likely to impact sales but inquiries and footfalls increased towards end of September after heavy discounts and promotional offers by companies, brokerages said.

Sharekhan said channel checks indicated continued higher inventories in the passenger vehicles (PV) segment and two-wheeler segments at around 4-6 weeks and 5-7 weeks, respectively, which have led to sustained weakness in demand.

According to the brokerage house, commercial vehicles (CV) segment is likely to be the worst affected segment with volumes likely to drop by 40 percent YoY (versus a 41 percent decline in August 2019).

"High channel inventories, slow economic growth and impact of revised axle-load norms are likely to weigh on volume growth. Also, CV majors such as Ashok Leyland have resorted to steep production cuts, which would impact wholesales," it said.

Ashok Leyland corrected more than 5 percent ahead of sales numbers on September 30 and Tata Motors lost 2 percent.

Among others, Hero MotoCorp, Maruti Suzuki and Bajaj Auto were down more than a percent while the Nifty Auto index itself shed 0.8 percent.

Sharekhan feels the PV segment volumes are likely to drop 26 percent YoY for September 2019 (August 2019 drop of 33 percent) as high inventories and Shraddh period would impact demand.

Market leader Maruti Suzuki's volumes are likely to slide by 30 percent YoY, it feels.

The brokerage said two-wheeler sales volumes are expected to drop by 16 percent (versus the August drop of 20 percent) triggered by high channel inventories, Shraddh period and floods in select pockets while tractor sales volumes too are likely to drop 4 percent YoY in September.

Motilal Oswal also sees double digit decline in auto wholesales with Maruti Suzuki likely showing a 29 percent YoY decline in September, M&M 20 percent, Tata Motors 45 percent, Hero MotoCorp 26 percent, Bajaj Auto 15 percent, Ashok Leyland 43 percent, TVS Motor Company 23 percent and Eicher Motors 6 percent.

However, most of these companies are expected to show good growth compared to previous month due to low base in August.

Now especially after several measures including 10 percent cut in corporate tax rate taken by the government to revive economy and heavy discounts with attractive promotional offers, the growth is likely to be seen in coming months amid festival season, experts said, adding if the demand revival could not happen then the risk of earnings downgrade could increase.

After interacting with two-wheeler dealers, Edelweiss said an increase in enquiries was anticipated as buyers waiting on the sidelines (due to monsoon, GST rate cut expectations) are likely to walk into showrooms.

"Like-to-like pre-festive sales are down YoY. Hence, an uptick in festive period sales is critical to assess genuine demand and clear inventory backlog ahead of the transition to BSVI. Should demand revival not come through, the risk of earnings downgrade would spike," the brokerage added.

"Our interaction with leading PV/2W/CV channel partners indicates an MoM improvement in inquiries with the start of the festive season and the record discounts on offer. With no GST cut, the onset of the peak festive season and OEMs going all-in with offers, the upcoming festive season is critical for resurrecting FY20 volumes. Most OEMs continued their inventory cutting efforts through production cuts in Sep’19," Motilal Oswal said.

(Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions)

Sunil Shankar Matkar
first published: Sep 30, 2019 08:18 pm

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