By Aditya Raghunath
Investing.com -- April has been a bad month for the auto sector. The second wave of the pandemic has impacted the sector in a major way as dealerships have remained closed and footfalls have dropped drastically. The negative impact will continue in May as well as leading OEM (original equipment manufacturers) like Maruti Suzuki India Ltd. (NS: MRTI ) have scheduled shutdowns in the month.
There are challenges in the supply chain, dealership activity and customer movement due to the localized restrictions in several states. Axis Securities lays out four points for auto sales:
- Demand for passenger vehicles is better placed with long waiting periods.
- Two-wheelers will struggle as there is low demand and high dealer inventory.
- Commercial vehicle demand will recover once the pandemic situation normalizes.
- Tractor fundamentals are strong thanks to a good Rabi harvest, and predictions of a good monsoon.
The firm is expecting a swift recovery in certain sectors once the pandemic normalizes and is betting on Bajaj Auto Ltd (NS: BAJA ), Ashok Leyland Ltd. (NS: ASOK ) and Escorts Ltd (NS: ESCO ) to do well. In its May 3 report, it had the following to say about the stocks:
Bajaj Auto: It reported total sales of 3.88 lakh units resulting in a ~5% MoM growth in total volumes. The company's 2W grew by 5% MoM on account of strong demand for its premium portfolio whereas export volumes grew by 48% MoM to 2.53 lakh units. The stock is trading at Rs 3,789 as of this report.
Ashok Leyland: It reported total sales of 8,340 units resulting in a 52% MoM decline in overall sales. The company’s LCV segment witnessed a 35% MoM decline whereas the MHCV segment saw a 61% MoM de-growth. The stock currently trades at Rs 111.
Escorts: Escorts reported total sales of 6,979 tractors, registering a de-growth of 43% MoM in Apr’21. Domestic sales de-grew by 46% MoM whereas exports de-grew by 2% MoM. Escorts stock is trading at Rs 1,113.55.
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