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Published on 20/09/2021 12:31:15 PM | Source: JM Financial Ltd

Auto Sector Update - 2W dealer checks: demand revival in upcoming festivals By JM Financial

Posted in Broking Firm Views - Sector Report| #Auto Sector #JM Financials #Sector Report

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2W dealer checks: demand revival in upcoming festivals – a key

We conducted two-wheeler (2W) focused channel checks with c.20 dealers across 10 states (representing 70%+ of volumes) to assess the dealership operational status and demand outlook. As per the checks, 2W retail sales at most of the dealerships are 10-40% below normal owing to price hikes, high fuel prices and increase in awareness of EVs.

Footfalls are also low as enquiries are shifting online. In few regions, e-2Ws are gaining market share with increase in level of enquiry, while there are still some regions where EV presence is low and unpopular. There have been instances where customers are delaying purchase in anticipation of launch of EV products from the existing OEMs/Ola Electric. Dealers anticipate Ola to start delivering vehicles from Oct’21 but highlighted that build quality, performance and after sales are the key monitorables. Most of the dealers are optimistic about demand revival by the festive season starting Oct’21 and also planning to increase their inventory during Sep’21 to cater to festive demand.

Current inventory is at normal level in case of TVSL and BJAUT at 25-30 days while HMCL inventory is a tad higher. RE continues to have high pending bookings particularly for Meteor and Himalayan. Currently, discounts offered by the OEMs are minimal and expected to increase during festive season. Demand for existing OEMs is expected to be contingent on the sentiment during festive season.

 

* Retail demand remains muted: Post easing of regional lockdown, demand recovery in 2W has been slower vs. same period last year. Current retail sales are 10% to 40% lower than normal levels across most of the dealerships. Dealers highlighted that demand is being impacted by a) commodity related price hikes, b) increase in fuel prices, c) impact on disposable income from second Covid wave and d) caution regarding third Covid wave. Enquiry levels are also lower than normal. Footfalls are low as high share of enquiries are shifting online. Despite price increase, dealers are not witnessing downtrading.

 

* EVs gaining traction: Few dealers highlighted that there is an increase in enquires for e2Ws. Players like Hero Electric, Ather, Okinawa and other less popular brands are witnessing increase in volumes on a MoM basis. Some also highlighted that demand for TVS Pep (scooter) and Moped is impacted due to increase in e-2W traction. However, there are still regions where EV presence is low and unpopular. There have been instances where customers are delaying purchase in anticipation of launch of EV products from the existing OEMs/Ola Electric. A few dealers anticipate Ola to successfully ramp-up production and start delivering the vehicles by Oct’21 while other dealers highlighted that build quality, performance and after sales are the key monitorables.

 

* Dealers are optimistic about near-term demand; inventory filing ahead of festive season to support wholesales: The dealers are optimistic about strong retails during the upcoming festive season and also expect support from new product launches (RE new Classic 350 – Sep’21, TVSL – 125cc scooter and MC expected in Oct’21). The current inventory is at a normal level in case of TVSL and BJAUT at 25-30 days, while being a tad higher in case of HMCL. The dealers are looking to increase the inventory further during Sep’21 in order to cater to festive demand. In case of RE, inventory continues to remain extremely low due to supply constraints. Wholesales in case of RE is likely to be a function of the supply from the company. Sales during ‘Ganesh Chaturthi’’ and risk of Covid third wave are key monitorables.

 

* Low discounts; price hike across OEMs in July: OEMs have taken up to 2% price hike during July. While TVSL continues to refrain from offering any discounts, HMCL and BJAUT are providing limited discounts on select models. However, discounts are not supporting sales momentum as seen in the case of HMCL’s discount of INR 4,000 on scooters.

 

* Stringent financing process: Dealers highlighted that financing norms have become stringent post Covid wave 2 and LTV is lower for customers with low CIBIL score. Finance penetration is currently lower than 50% at most of the dealerships. High absolute interest charge on increased vehicle prices is also a deterrent for financing. During the festival season, dealers are expecting launch of some finance schemes and increase in finance penetration.

 

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