Published on 19/04/2021 11:02:32 AM | Source: Motilal Oswal Financial Services Ltd

Auto Sector Update - Second wave strikes 2W markets harder than before By Motilal Oswal

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Second wave strikes 2W markets harder than before...

…dealers skeptical about strong recovery post second wave We interacted with 2W dealers to gauge the demand and impact of the second wave on 2W sales, especially considering the mini festive seasons in many parts of the country as well as the wedding season. Expected 2W demand recovery during this mini festive/wedding season is yet to play out and is much lower than normal.

Mini festive season a washout for 2Ws

* We interacted with 2W dealers to gauge the demand and impact of the second wave on sales – sales are down by 30–50%, with no signs of recovery.

* Dealers commenced Apr’21 with high inventory owing to a) the year-end push and high sales expectations from the festive season (Navratri, Gudi Padwa, etc.) and wedding season (northern and central India) and b) rural demand from the rabi harvest.

* Inventory at Hero (45–60 days), Bajaj (35–50 days), and TVS (30–40 days) was manageable at the start of the month, with a supporting number of inquiries and bookings. However, dealers saw a significant increase in cancellations with the rise in COVID cases.

* Hardly any sales were reported from the festive season nor any demand from the rabi harvest. However, dealers in northern India (Rajasthan, MP, UP, etc.) are faring better on account of some wedding season demand.

* Schools and colleges remain closed, which has further deferred recovery in the Scooter segment.

* Maharashtra dealers on Gudi Padwa posted just 50% of expected sales.

* UP retails were also impacted by the ongoing Panchayat elections (till 29th Apr).


Smaller cities impacted – major markets for 2Ws

* Smaller cities are seeing the impact of the second wave (unlike the first wave) – cases reported in the second week of Apr’21 surpassed the peak of Sep’20.

* Unlike the first wave, the second wave would see limited benefit from pent-up demand. As per dealers, after the first lockdown, sales were driven by pent-up demand on account of the a) wedding season, b) rabi harvest, and c) nonavailability of public transport. Demand was further supported by cash in the market as well as a very low number of cases.

* However, people have lesser savings amid the second wave as a consequence of a) slow economic activity in FY21, b) minimal cash inflow from migrant relatives, and c) high medical bills. Therefore, at the current rate of increase in COVID cases, recovery is expected to be more back-ended.

* Wholesale perspective: While FY21 wholesales were down 12%, retail registrations were down 32%. This implies 23% of wholesales were used to stock up on inventory post the BS6 transition, which is not likely to be the case this time around.


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