Nomura expects Hero MotoCorp’s volumes to be down 27%. Bajaj Auto’s domestic 2W is likely to be down 42% yoy. Overall volumes are likely to be down only 11%, as exports are up 31%. TVS Motors domestic volumes are likely to be down 30%, while a strong 63% potential jump in exports should lead to overall volumes down 9%. Royal Enfield volumes are likely to be down 13%.
A sharp rise in COVID-19 cases pan India and lockdowns have affected retails by 40-50% mom to 30-40%, as per Nomura’s dealer survey. As production has been less impacted in April, wholesales may be much better. Nomura, however, expects wholesales to drop from May as inventory levels catch up. Some companies like Hero Motocorp have already announced a four-day plant closure in April, while Maruti Suzuki has rescheduled its bi-annual maintenance shutdown from June to May. Hence, data for the next one-two months could remain volatile and even rural segments like tractors may have an impact due to lockdowns and as consumers stay at home. However, as highlighted earlier, Nomura believes the demand is not perishable and will return as pent-up demand as pandemic gets contained.
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Given there were no sales in April 2020 due to COVID-19-related lockdowns, Nomura compares volumes with April 2019 levels to gauge the level of the recovery. Over a two-year period (Apr-19 to Apr-21), Nomura estimates sales were 22%/18% higher for PVs/tractors, but down 31%/32% yoy for 2Ws/MHCVs. The impact seems to be higher for 2Ws, as retails were already weak in March (similar to Mar-16 levels) and inventory levels are high at >6 weeks. In April 2021F, for tractors we estimate volumes to be flattish for Mahindra and Mahindra. Nomura estimates PV industry volumes to be up 23%. While near-term demand can be at risk from rising COVID-19 cases, given low inventory levels and pent-up demand, Nomura maintains a 30% yoy growth estimate for FY22F.
For 2Ws, Nomura forecast industry volumes to decline 31%. Given weak retail trends, we see downside risks to Nomura’s estimate of 18%/12% growth for FY22/23F. For MHCVs, fleet operator profitability has been impacted in April due to 15% decline in freight rates. This can impact near-term wholesales, albeit demand likely recovering as the pandemic is contained. Thus, Nomura factors in 32% decline on April 21 and maintains 85%/25% y-y in FY22/23F. On costs, Nomura’s commodity cost index is currently up further 200bps, compared to 4QFY21 levels, for both PVs and 2Ws, which will lead to more margin pressures in 1QFY22F, in Nomura’s view. M&M remains Nomura’s top pick in the sector due to its higher rural expos
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