Festivals didn't help auto sales much in September, says Elara Capital

For automobile sector, it has been a lukewarm start to the festive season, according to Jay Kale, Senior Vice President-Research at Elara Capital. The Ganesh Chaturthi and Onam festivals in Maharashtra and Karnataka, compared to the FY19 volume, are around 20 percent lower.

"There hasn’t been much improvement in September demand versus what was going on from April to August," he said.

Key rural states have been underperforming for a while. According to him, rural states like Uttar Pradesh (UP), Bihar, Jharkhand, Rajasthan etc, have to bounce back because they constitute a large portion of the festive weightage.

He believes the trends in July and August have further weakened in rural states versus what the marriage season trend was from April to June. “That is a cause of concern, and we would want to monitor that in the festive season,” he said.

The ask rate for the festive season, around 7 percent on a year-on-year (YoY) basis, is not too demanding. He believes this is achievable, but it also factors in some bit of recovery in the rural markets. “So, we are gunning on a pent-up demand and non-agri rural demand bouncing back, which needs to be monitored,” he mentioned.

Eicher Motors has a lower contribution from the rural states, and the urban, doing relatively better, has its positive rub-off on the overall market shares.

Apart from that, the newly launched Hunter has garnered a decent enough response. “But we have to see how that sustenance comes in, post the cannibalisation of the existing models,” he said.

Elara has a sell rating on Eicher. “We believe that next two-three months could be good but post that, sustenance needs to be monitored,” he explained.

He is positive about TVS Motors. This is one of the only companies in the two-wheeler space to have a very strong success rate of new launches, as per Elara.

“From an engineering standpoint, they are one of the best plays to capitalise on this emission norm change and the technology change to EVs. It will continue to remain a very strong earnings growth company, one of the highest in two-wheelers, and that will lead to expensive valuations, so we are positive on the stock,” he explained.

Exports of two-wheelers which are mainly in the African, Latin America, Middle East and South East Asian countries, are expected to see some downside risk.

Bajaj Auto has the highest revenue exposure from exports in the two-wheeler pack, close to around 45-50 percent of revenues coming in from exports and maybe even higher profits from exports.

“While domestic recovery will aid them in the near-term, exports will keep that stock under rangebound at current levels,” he said.