June’21 Volumes Are Likely To Be Higher Than May’21 – Emkay Global

As per a research report released by Emkay Global Financial Services, the auto sales for the month of June 2021 are likely to be higher than May 2021 but unlikely to reach normal levels due to staggered unlocking across states during the month. Emkay Global expects volumes to recover from Q2FY22 due to the easing of lockdowns, pent-up demand, and improving macros.

The research firm is positive on the automobile sector underpinned by expectations of a strong cyclical upturn, that may last for at least three years. The top picks among OEMs are Tata Motors (TP: Rs410), Ashok Leyland (TP: Rs155), and Eicher Motors (TP: Rs3,180). In Ancillaries, Motherson Sumi (TP: Rs325) and Apollo Tyres (TP: Rs290).

Good monsoon, MSP hike to support tractor volumes

Lockdowns and severe pandemics impacted volume performance in May’21, but channel checks indicate positive growth in Jun’21. Customer sentiments have been supported by enhanced crop procurement by the government, expectations of good monsoon, and moderate MSP hikes for Kharif crops. Domestic volumes may grow 23% YoY for M&M and 6% YoY for Escorts. M&M’s growth is likely to be higher due to a favorable base.

PV volume expected to improve

The PV industry volumes should improve, due to a healthy order book and lower dealer inventories (2-3 weeks vs. normal level of 4 weeks). The research team compared volumes with Jun’19 numbers. Two-year CAGR for domestic PV volume is estimated to be 31% for Tata Motors and 1% for Maruti Suzuki, while M&M could see a 5% decline. 

Two-wheeler volumes may be subdued

The 2-Wheeler industry volumes should be subdued as the second wave of pandemics has impacted customer sentiment, especially in the case of the business community and low-income categories. Two-year CAGR for domestic volume is expected to be -15% for Eicher Motors-Royal Enfield, -18% for Hero MotoCorp, -19% for Bajaj Auto, and -24% for TVS Motors. Although domestic volumes would be under pressure, exports are likely to witness positive growth due to healthy demand and stable currency in key markets. 

CV volumes expected to be under pressure

The CV industry volumes should be under pressure due to lower freight availability, leading to a postponement of purchase orders by transporters. Two-year CAGR for domestic volumes is likely to be -31% for M&M, -47% for Tata Motors, -48% for Ashok Leyland, and -48% for Eicher Motors-Volvo Eicher Commercial Vehicles.