Sharekhan expects March 2021 to be yet another strong month for the automobile industry, with demand improving across all segments, except subdued growth in three-wheeler (3W) sales and growth moderation in entry-level bikes. Sharekhan expect tractors and commercial vehicle (CV) sales to drive growth in March 2021, with passenger vehicles (PV) and two-wheelers (2W) segments reporting strong numbers, aided by robust momentum in exports. The 2W industry is expected to register 10% yoy growth in March 2021, driven by exports and faster growth in scooters and bikes of 125cc+ segment.

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Hero MotoCorp on the back of positive sentiments in rural and semi-urban areas. In the PV space, Sharekhan likes Maruti Suzuki and expect it to maintain its market share of 50% and robust growth in exports. In the tractor segment, Sharekhan likes M&M, given its leadership in the tractor segment, and its continued strong performance in other segments such as LCV and UVs. In the auto-ancillary space, we like Bosch (due to its extensive network and brand equity), Sundram Fasteners (Beneficiary of strong growth traction in CV, PV, 2-Ws and tractor, and its strategy to de-risk business from cyclicality), Suprajit Engineering (on account of increased share of business with existing clients and new client additions), and Gabriel India (due to its leadership position and brand recall in the suspension components segment and focus on the e-mobility space).

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The yoy comparison would be inflated due to lower base in March 2020, as the lockdown in the country disrupted the supply chain fully. The lockdown in the country was ordered on March 23, 2020, as a preventive measure against COVID-19 pandemic in India. Our channel check suggests higher offtake from rural, semi-urban, and urban areas. Urban and metro areas are showing signs of strong recovery, which is likely to help Royal Enfield (RE). Exports are expected to be the top contributor for 2W and four-wheelers (4W) growth in March 2021, aided by strong sentiments in export markets. 2W exports are expected to continue volume momentum on a mom basis, driven by TVS Motor and Bajaj Auto’s sales.

The PV industry is expected to grow by robust 131% y0y in March 2021, led by strong retail demand and new launches in the segment. Tata Motors’ PV segment is expected to grow by 393% y-o-y, while Maruti Suzuki is expected to grow by 95.8% yoy on a low base. We expect the tractor industry to continue to maintain monthly run-rate on a sequential basis in March 2021, driven by improvement in farm income during the year. Rural demand is expected to be strong in southern and western India, given higher kharif sowing and a copious monsoon, both of which are crucial for these regions.

Tractor sales are likely to pick up, ahead of summer crops. We expect a strong sequential improvement in M&HCV sales to continue, driven by rise in e-commerce, agriculture, infrastructure, and mining activities. Sharekhan remains positive on the sector and expects strong rebound in FY2022E, driven by increasing economic activities, improving sentiments of fleet owners, and lower cost of ownership under BS-VI vehicles.