Uptrend forecast on commercial vehicle sales

CV industry volumes are expected to improve, aided by healthy freight availability, better freight rates and pickup in construction activity. Channel checks indicate that volumes are aided by Tippers, ICVs and some replacement demand for MAVs

Mumbai: Commercial Vehicles (CV) sales for October month are likely to maintain a positive momentum, whereas Passenger Vehicles' volumes arelikely to be hit by the chip shortages, though better on a sequentialbasis.

The past quarter has not been well for the auto companies. Tata Motors has reported a consolidated net loss of Rs 4,441.6 crore for the quarter ended September as against a net loss of Rs 314.5 crore in the year-ago quarter. The consolidated net loss reported by the company was higher than analysts' estimate of Rs 3,451.9 crore net loss.

Two-wheelers and tractors are likely to decline due to lower retail sales and high-base effect on account of inventory filling last year. The festive season has been subdued for two-wheelers and tractors. Emkay Global retains a positive view on the auto sector, underpinned by expectations of a cyclical upturn in the next three years. It likes Ashok Leyland, Tata Motors, TVS Motor and Maruti Suzuki and in ancillaries, Motherson Sumi and Ramkrishna Forgings.

CV industry volumes are expected to improve, aided by healthy freight availability, better freight rates and pickup in construction activity. Channel checks indicate that volumes are aided by Tippers, ICVs and some replacement demand for MAVs. The study expects domestic volume growth of 52 per cent YoY for Eicher Motor, 27 per cent for Tata Motors and 24 per cent for Ashok Leyland. In comparison, M&M is likely to see a 30 per cent dip as chip shortages affect dispatches.

"Chips shortage continued to impact certain segments of the auto industry in October 2021. However, there was some recovery as compared with September 2021. Despite strong demand, passenger vehicle industry volumes are expected to have declined significantly in Oct 2021 due to chip shortages. In the two-wheeler segment, the domestic two-wheeler segment remained under pressure whereas two-wheeler exports performance was relatively better. Commercial vehicle recovery slowed down during the month. Domestic tractor segment reported flattish volume growth on a YoY basis. Supply-chain situation is gradually improving and that should ease out some challenges for the auto industry going ahead," says Arun Agarwal, Deputy Vice President - Equity Research, Kotak Securities.

Two-wheelers industry volumes are likely to be significantly lower than last year due to lower retail sales and a high base on account of inventory filling last year. In addition, the chip shortage has affected dispatches of premium motorcycles, especially for Eicher Motors-Royal Enfield. The report expects domestic volumes to decline by 14 per cent YoY for TVS Motor, 26 per cent for Bajaj Auto, 27 per cent for HeroMoto Corp and 41 per cent for Eicher Motor-Royal Enfield.

PV industry volumes should fall notably due to supply-related challenges, though better on a sequential basis. PV industry wholesale volumes are expected to decline 29 per cent YoY, while increasing by 30 per cent MoM to 2,39,000 units. Retail volumes are likely to be higher than wholesale volumes by over 10 per cent. Analysts estimate domestic volumes to decline by 8 per cent for M&M and 39 per cent for Maruti Suzuki. In comparison, Tata Motors remains an outlier with 23 per cent growth. Production is expected to further improve in November on better chip supplies.

Demand remains strong for JLR and India PV while CV demand isimproving gradually.Semiconductor issues and commodity inflation willcontinue to impact the near term and people in the industry are doingtheir best to manage them. The performance is expected to improvegradually starting in H2 as both the supply chain and the pandemicsituation improves.

Thierry Bollore, Jaguar Land Rover's CEO, said: "The global semi-conductor shortage remains challenging, but I'mpleased to see the actions we have been implementing reduce theimpact. With strong customer demand with a record order book we arewell placed to return to strong financial performance as semiconductorsupply begins to improve."