Sharekhan likes Ashok Leyland and Tata Motors and expects them to benefit from the CV upcycle. Sharekhan retains Positive view on the sector. In the OEM space, Sharekhan prefers rural centric companies with a strong balance sheet. In the 2W space, Sharekhan prefers Hero MotoCorp, Bajaj Auto, and TVS Motor because of positive sentiments in rural, semi-urban,and exports. In the PV space, Sharekhan likes Maruti Suzuki and expects it to maintain its market share of 50% and robust growth in export.

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In-line with Sharekhan’s expectation, automobile volume continues to ride on strong consumer sentiments across segments in February 2021. Automobile companies continued to gain sales momentum in February 2021, driven by robust growth in tractor sales, recovery in commercial vehicles (CV), and buoyant demand in passenger vehicle (PV) sales and two-wheeler (2W) exports. However, domestic 2W sales saw moderation in growth, registering 7.6% yoy growth. 2W exports came as savior, growing by 18.8% yoy in February 2021. Tractor makers led growth in the automobile sector, reporting 26.4% yoy growth by leading players, M&M, and Escorts in the segment. Tractor sales continued to grow led by positive macro-economic factors and strong rural cash flows.

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Positive rural sentiments were driven by expansion in Rabi acreage, very high reservoir levels, and greater liquidity in the hands of farmers with timely Kharif procurement. CV volumes continued to show a strong recovery, driven by robust increase in infrastructure, mining, and e-commerce activities in the country. The CV sales improved by 7.6% yoy in February driven by strong growth in the M&HCV segment. The bus segment continues to report sluggish volumes and impacted overall CV growth.

Demand for PVs remained buoyant with the industry growing by 21.8% yoy, aided by preference for personal mobility, new launches, and strong sales performance by Tata Motors, Maruti Suzuki, Honda, and Toyota. Recovery in demand for three-wheelers (3W) remains slow, but the industry is expected to gain demand, as the COVID-19 situation normalises. Reopening of schools, educational institutions, corporates, andlocal/metro trains will be the key catalysts for demand.

Auto Sector Key risks:

The fear arising of the second wave of COVID-19 in a few states may result in partial lockdown and supply chain issues might arise. Driven by strong demand, we have witnessed increased commodity prices, rising inflation, and shortage of semiconductors impacting the industry to perform at full potential. These trends need to be closely monitored going forward.