Auto Sector Analysis

Analyzing COVID Lockdown Impact on Auto Sector Sales

Introduction

Auto Sector Sales in Apr’20 and May’20 adversely impacted by the nationwide lockdown amid COVID pandemic. Tractors was the only silver lining in the grey territory of Auto sector. Lets analyze the segment-wise as well as company-wise volumes in Apr-May’20.

Auto Sector Analysis

Domestic Auto Sector – Segment-wise Analysis

Segment-wise Sales Monthly Trend of Last 1 year (Jun’19 to May’20)

• The above chart shows monthly trend of segment-wise sales volume for last 1 year, from Jun’19 to May’20.
• Thus, we can clearly see that, there has been a huge decline in Auto sales volume from Feb’20. The sales in Mar’20 was almost half that of Feb’20 due to the nationwide lockdown amid COVID pandemic in last 10 days of Mar’20.
• Whereas, the Apr’20 month reported almost zero sales due to full-month lockdown situation.
• The sales has started reviving since May’20 after relaxation in the lockdown and also driven by pent-up demand.
• There is a significant recovery is seen to be significant in the Tractor segment. Thus, Tractors are the only Silver Lining in the dampened Auto Sales in Apr’20 and May’20. Positive rural sentiments played a key role in the notable revival seen in Tractors’ sales volume.

Segment-wise Analysis

A. Passenger Vehicles (PV)

• Domestic PV Sales declined 80-90% YoY in May’20.
• The production during May’20 is ramping up gradually and operating with limited workforce. It is mainly because of reverse migration of workers due to the standstill economic activity amid nationwide lockdown.
• Also, there was supply chain constraints due to lockdown.

B. Commercial Vehicles (CV)

• As we can see in the above chart, CV is the worst hit segment with a sharp decline in sales by 85-90%.
• It is adversely impacted by :
  1. Standstill economic activity
  2. No significant demand for MHCV (Medium & High CV)
  3. Overcapacity
  4. Low fleet utilization
     • Fleet utilization is an indicator which shows the extent to which available vehicles are used.
     • Thus, already low fleet utilization amid lockdown dampened the new sales of CV in May’20.

C. 2-Wheeler (2W)

• Domestic 2-Wheeler volume in May’20 is down by 70-85%.
• The May Sales primarily supported by Semi-urban & Rural areas.
• Key Drivers : Shift to personal mobility, Normal monsoon, Festive demand in the second half of FY21 ie. H2:FY21.

D. Tractors

• Tractors are the only Saving grace in grey territory of Auto sector.
• For May’20, Escorts has reported a marginal sales decline 0.5% YoY.  While, Mahindra & Mahindra Tractors reported a positive domestic sales growth of 2% YoY.

Domestic Auto Sector – Company-wise Analysis

Maruti Suzuki

• Domestic volume is declined 89%, while the export volume declined 49% YoY in the May’20. Thus, the total sales in May’20 was down by 86%.
• The company would be beneficiary of Shift towards a personal mobility amid COVID pandemic and a strong entry level range.
• Dealers in green zone have reported higher enquiries for Entry level cars (Rs.4-6 Lakh).
• Maruti Suzuki partnered with ICICI Bank to offer customers attractive financing schemes.

Mahindra & Mahindra (M&M)

• Domestic Tractor was the only Silver lining with positive growth 2% YoY. The May’20 sales was 24,017 as against 23,539 in May’19.
• Loss of Volume in Q1 FY21 due to Lockdown was 87,000 Vehicles and 30,000 Tractors.
• 75% of Dealership was Open in May’20. Company is expecting Rural sales to recover earlier than Urban areas.

Ashok Leyland

• Ashok Leyland’s MHCV- Medium & Heavy Commercial Vehicles sales declined by a massive 98% YoY led by :
  1. Overcapacity
  2. Subdued freight demand (only 15% utilization)
  3. BS-VI transitional challenges
• Migrant Drivers/ helpers is a pain point
• LCV- Light Commercial Vehicles to recover faster due to increased last-mile connectivity. Thus, LCV helps the company to de-risk from the dampened sales of MHCV vehicles.

Eicher Motors

• Royal Enfield and VECV (Volvo-Eicher Commercial Vehicles) reported decline in May’20 sales by 69% and 86% YoY. While the total sales of Eicher Motors was down by 71%.
• Company has provided Finance Support & lowered down payments up to Rs.20,000.
• Footfalls have reached up to 40% of Normal pre-COVID level.
• Royal Enfield has taken a price hike of Rs.2,500 on account of high pent up demand.

Hero MotoCorp

• Production Resumed gradually across company’s all 6 Manufacturing facilities.
• There was a good sales response in Semi-urban & Rural areas.
• The company to benefit from Shift to Personal mobility due to company’s dominance in Entry-level segment in 2-Wheeler.

Bajaj Auto

• 2W Financing is challenging as company’s Captive Financier – Bajaj Auto Finance has turned cautious.
• Pulsar has failed to perform in 125cc segment.
• Domestic 3-Wheeler sales could be under a cloud as driver incomes have suffered substantially due to the lockdown & availing finance is challenging now.
• The Company expects the situation will improve H2:FY21 onwards.

TVS Motors

• TVS Management expect that the company will outperform its rivals in the export market.
• 70% of the Dealership have opened up.
• Company’s key focus is to clear out dealer inventory first.

Escorts

• Escorts Volume in May’20 declined by only 3% YoY to 6,594 from 6,827 in May’19.
• Sales were supported by positive rural sentiments, good rabi harvest & record government procurement.

Management Commentary

• Mahindra & Mahindra Automotive
  • 75% of Dealerships have opened up Retail Sales have begun in May
  • Initial Traction is seen for Small Commercial Vehicles – SCV and SUV brands – Bolero, Scorpio.
• Mahindra & Mahindra Tractors
  • The management is very optimistic about rural demand Robust Rabi output, Normal Monsoon, Government’s Reforms for Agriculture.
  • All these drivers augurs well for tractor demand in future
• Eicher Motors    
  • The company has resumed production of Royal Enfield in a gradual and partial manner.
  • Around 2/3^rd Dealerships opened up and attained nearly Pre-COVID level bookings towards the May-end.
• Hero MotoCorp
  • The company has resumed operations at all 6 Manufacturing facilities with limited production.
  • Nearly 5000 outlets re-opened in May. Retail sales in May was 1.6 Lakh units driven by demand in Semi-urban & Rural markets.
• Bajaj Auto
  • Mr. Rajiv Bajaj, MD Bajaj Auto, expects Domestic 2-Wheeler demand to accelerate and will reach 70% of normal level in June. While, 3-Wheeler demand will be lower at 30% of normal level.
  • The company could met only 50% of export orders due to the shortage of transport.
  • Key drivers for the sales are Semi-urban and Rural areas.

Future Outlook

• First 10 days of June witnessed extremely low demand despite many dealerships open for business.
• Weak consumer confidence especially in urban areas continues to dampen. Customers are postponing their purchases amid COVID-related uncertainties.
• Society of Indian Automobile Manufacturers (SIAM) has projected an annual de-growth of 35% in FY20 on top of the 18% de-growth faced last year, in 2019.
• The Auto Dealers are facing their toughest year ever as volumes are estimated to reduce to half in a span of 20 months.
• With the tough business environment persisting, the dealer community is seeking increase in sales margins on vehicles.