Below is view on Auto Sector By Mr. Vinkesh Gulati, Chairman – Research & Academy, FADA and Partner – United Automobiles
We hosted Mr. Vinkesh Gulati, Chairman-Research & Academy FADA and partner United Automobiles, to understand the demand post-two years of normal festival. Overall on the ground sentiments continue to remain positive but are still below pre-Covid levels especially for entry-level segments across all categories.
* Festive season sales to bring cheer all over: All the categories are expected to see growth in this festive season on a base of last year. Data released by FADA on Navratri’s retail sales needs to be viewed in light of a month-end factor, which consists of incentives/KRAs for dealers to drive sales. This festive season would be the best ever retail season for PVs and would bring some respite to the lagging 2W segment. Inquiry levels for 2Ws are healthy but retail sales continue to be lower than pre-Covid levels. Erratic monsoons in most part of the country are acting as a dampener too.
* Order book and cancellations for PVs: Cancellation rates are in the range of 15% (v/s less than 10% pre-Covid) but the sheer numbers of new bookings and the large pending orders at the dealers end has been growing. Hence, rather than focusing on cancellation rates, one should focus on net orders.
* Post-festival season demand needs to be monitored: Presently, PV demand has been strong with a healthy order book. Improving supplies from OEMs are leading to a decline in the waiting periods. Post-festive season, OEMs would be making a shift to the new RDE norms that would lead to price hikes similar to BS4 and BS6. Diesel category vehicles would be more adversely affected than their petrol counterparts. Entry-level customers are still not coming to dealerships vis-à-vis preCovid levels thus hurting the 2W, entry-level CV (SCV) and PV sales.
* EV penetration would be lower than expectation: Electrification of 2Ws is constrained by the limited capacities of OEMs. Traditional OEMs are not willing to showcase e-scooters in the existing dealerships thus hurting conversion of ICE customer to EVs. e-3Ws and e-buses are categories that would see rapid electrification. About 30% electrification in overall PVs by 2030 would be an ambitious target to meet but individual OEMs would be able to achieve it.
* Valuation and view: While easing semiconductor supplies boost PV retails and CVs continue to grow on increasing economic activities & high capacity utilization. The 2W segment demand hinges on the festive season, which seems to have started on an encouraging note. We prefer 4Ws over 2Ws, on the back of strong demand and offer a stable competitive environment. We expect CV cycle to maintain momentum. We prefer companies with: a) higher visibility in terms of a demand recovery, b) a strong competitive positioning, c) margin drivers, and d) balance sheet strength. MSIL and AL are our top OEM picks. Among auto component stocks, we prefer BHFC and APTY. We also like HMCL as a pure play on the expectations of domestic demand recovery
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