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Apr’21 preview: Lockdown dampener to Auto sales

* Apr’21 demand is likely to be impacted by Covid-19-related restrictions/lockdowns across several states. On a sequential basis, we expect volumes to be lower across segments. As volume numbers are not comparable yoy due to the complete lockdown last year, we have weighed them against Apr’19 numbers – Tractors and PVs are likely to be higher, while 2Ws and CVs are expected to see a double-digit decline.

* PV industry volumes should improve compared to Apr’19 levels. Although retails are affected, healthy order book and inventory build-up with dealers have been supporting wholesales. Two-year CAGR for domestic volumes is expected at 43% for TTMT and 4% for MSIL, while MM could see a 13% decline.

* Tractor industry volumes should also improve from Apr’19 levels. Despite pressure on retails, channel filling would support wholesales. Two-year CAGR for domestic volumes is expected at 27% for ESC, while it is negative for MM at -11% due to a high base.

* CV industry volumes are likely to be under pressure, owing to lower freight availability. Our checks indicate that transporters are holding back orders till there is clarity on easing of lockdowns. Two-year CAGR for domestic volumes is expected to decline at -10% for EIM-VECV, -14% for TTMT, -15% for AL and -15% for MM.

* 2W industry volumes are expected to be weak, as lockdowns resulted in loss of student demand and subdued festive season. Premium segment demand remains better than that of the entry level segment. Two-year CAGR for domestic volumes is expected at - 11% for HMCL, -13% for EIM-RE, -15% for BJAUT and -17% for TVSL.

* Near-term demand may remain subdued due to pandemic-related restrictions. However, we expect a recovery from Q2FY22 onward. Our positive view on the Automobile sector is underpinned by expectations of a strong cyclical upturn, which is expected to last at least three years. Our top picks among OEMs are TTMT (TP: Rs375), AL (TP: Rs155), MSIL (TP: Rs8,500) and EIM (TP: Rs3,300). In Ancillaries, we like BHFC (TP: Rs760) and APTY (TP: Rs306). Key downside risks to our calls and estimates: Delay in economic recovery, rising competitive intensity and adverse movement in currency/commodity prices.

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