Sharekhan expects February 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 expects tractors and commercial vehicle (CV) sales to drive growth in February 2021, with passenger vehicles (PV) and two-wheelers (2W) segments registering double-digit growth, aided by robust growth in exports. Hero MotoCorp and Maruti Suzuki are preferred by Sharekhan in Auto Space.

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The 2W industry is expected to register 10% y-o-y growth in February 2021, driven by exports and faster growth in scooters and bikes of 125cc+ segment. 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 February 2021, aided by strong sentiments in export markets. 2W exports are expected to grow at a robust 110% yoy, driven by TVS Motors’ 220% and Bajaj Auto’s 40% growth.

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The PV industry is expected to grow by robust 11% yoy in February 2021, led by strong retail demand and new launches in the segment. Tata Motors’ PV segment is expected to grow by 117% yoy, while Maruti Suzuki is expected to grow by 9.4% yoy on a large base. Sharekhan expect the tractor industry to continue to grow at a robust rate of 35.9% yoy in February 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. Ashok Leyland is preferred by Sharekhan in tractor space.

Preferred Picks in Auto Sector:

Sharekhan believes volume growth seen in the automotive industry is likely to sustain in strong double digits in FY2022. In the OEM space, we prefer rural-centric companies with a strong balance sheet. Thus, Sharekhan recommends Hero MotoCorp, Maruti Suzuki, M&M, and Ashok Leyland. In the auto-ancillary space, Sharekhan likes agri plays such as Bosch and Schaeffler (due to increased content per vehicle under BS-VI norms), Mayur Uniquoters, and Suprajit Engineering (on account of increased share of business with existing clients and new client additions).