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Auto sales for March could see a 50 per cent year-on-year (YoY) decline in volumes, given the lockdown and decline in footfall during the second half of the month. While sales of passenger vehicles and two-wheelers were expected to fall 40-50 per cent, sales of commercial vehicles are expected to dip 70-90 per cent.
An auto analyst at a domestic brokerage said the sharp fall in volumes, especially in the medium and heavy commercial vehicles segment, came on the back of a significant number of cancellations in the last two weeks.
Given the uncertainty related to Covid-19 and the impact of the same on demand over the next 6 months, it does not make business sense for fleet operators to order more vehicles, he added.
Utilisation levels had dipped to 50-60 per cent prior to the lockdown, caused by the slowdown, and may see a further dip. While most of the transport sector has been shut, the limited activity is largely due to the transportation of essential goods, which is not enough to negate the overall costs, he added.
While most analysts expect India to follow the auto sales trend in the US, which indicate a 50 per cent in decline in March, Kapil Singh and Siddhartha Bera of Nomura believe April would be worse. Citing China’s example, which saw PV sales fall 20 per cent in January and 80 per cent in February, they expect sales to decline 10-20 per cent in March and 50-80 per cent in April if the lockdown is extended.
The other issue is that of inventory. While the PV and CV segments have inventory of 12,000-15,000 units, the same in the two-wheeler category stands at 700,000. CARE Ratings estimates the value of BS-IV inventory (of two-wheelers) at Rs 4,600 crore.
While the Supreme Court has given a 10-day relaxation that allows dealers to sell their stock by April 24 (lockdown ends on April 14), it has restricted sales to only 10 per cent of the unsold BS-IV inventory, which is not enough, say analysts.
Further, given the slowdown in overseas markets, especially oil exporting countries, alternatives are limited. The nervousness was reflected on the share prices of auto companies, including large exporters such as Bajaj Auto and TVS Motor.
The BSE Auto index was the second biggest loser among sectoral indices on Monday, shedding 5.44 per cent. Mitul Shah of Reliance Securities says concerns related to the liquidation of BS-IV inventory, coupled with muted volume expectations for March, led to the sell-off in auto stocks.
Most brokerages expect revenues to fall 30-40 per cent and earnings by 50 per cent for FY21, if the lockdown is extended.
