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Post the announcement of November month sales figures, shares of automobile players such as TVS, Maruti, Tata Motors, M&M, Ashok Leyland and Escorts declined in the range of 1.4–4 per cent on Friday on the BSE while Bajaj Auto and Hero MotoCorp closed up marginally. However, Eicher Motors stole the show as the company’s shares ended up 3 per cent
Sales of most automobile players skid year-on-year in November feeling the heat of demonetisation. Companies operating in rural markets or dealing with lower income groups (who mostly dwell cash) or selling higher ticket sized vehicles such as two wheelers, commercial vehicles and tractors got affected the most. Accordingly, Bajaj Auto, Hero MotoCorp and M&M faced the brunt.
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Lesser than estimatesHowever, the decline in sales has been lesser than analysts’ expectations. “Most companies reported less-than-expected decline as they built in inventory after strong retail sales last month on account of festive demand,” said Gaurant Dadwal, analyst at Nirmal Bang Institutional Equities.
Hitesh Goel, analyst at Kotak Institutional Equities shares the same reason and view.
Despite about 30 per cent sales coming from rural areas, Maruti Suzuki exceeded expectations with 12 per cent rise y-o-y in domestic sales volumes in November. Due to presence in premium priced motorcycles, Eicher Motors also reported 41 per cent jump in volumes. Analysts also attribute the reason for robust volume growth of Maruti and Eicher to long-waiting period on key models.
Sales volumes could once again disappoint in December as it is usually a weaker month for automobiles. “We expect December to be a tough month and expect y-o-y volume decline for most original equipment manufacturers,” said Goel of Kotak Institutional Equities.
Sales pick upThings are expected to improve gradually, according to management comments by Hero MotoCorp, TVS Motor and M&M. TVS said sales pick up is already happening.
M&M expects continued growth against backdrop of improved agriculture output.
Dadwal of Nirmal Bang believes that two-wheelers will be first ones to recover given their low ticket size followed by passenger vehicles. “We expect commercial vehicle sales to be worst-hit, but because of the upcoming emission norm changes, original equipment manufacturers may build in more inventory as they expect pre-purchases over the next four months,” he said.
Nevertheless, Ambit has downgraded volume expectations (across all segments) for second half of FY17 to reflect the impact of demonetisation. “In FY18, the impact will be more profound on passenger vehicles (discretionary purchases) and medium-to-heavy commercial vehicles (subdued real estate, weak resale markets) as compared to two wheelers (low ticket, utility purchases),” it said.
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