Dealers continue to remain weary of the demand environment and are pessimistic on near term growth. Most estimate no YoY industry growth in the next six months. Down-trading is clearly a trend being witnessed by most dealers, with majority of them attributing it to high petrol prices and lower discretionary spending (given the high inflation). Share of 'sales on credit' have considerably increased and all players (except Honda) have tie-ups for attractive financing schemes. On the basis of these interactions, we expect a mid-single digit growth rate for the two-wheeler industry at best.
Passenger Vehicle sales still lackluster: Dealers indicated a visible deterioration in footfalls and conversions over the last six months. Consumer sentiments continue to be muted on account of higher fuel prices and overall reduced discretionary spending. Even high discounting has failed to significantly revive consumer interest. Recent government announcement to raise diesel prices every month (to reduce the subsidy) has tempered the relatively resilient demand for diesel vehicles, only a part of which seems to have converted to petrol enquiries. Our interaction suggests that car demand would remain weak for at least another six months with a high-single digit growth in FY14 at best.
Commercial Vehicles dealers most pessimistic: M&HCV dealers obviously were the most pessimistic of the lot. Each one thought that the key activity driving demand in their respective geography, be it exim trade, construction, mining or any other economic activity, had weakened in the last six months. Most pointed out that large fleet operators were completely out of the market. Fleet operator profitability remains low and round-trip utilization of fleet is at abysmal levels. Though still amply available, financing could get weaker, as many small fleet operators have started defaulting on their EMIs. With small fleet operators constituting majority of current truck sales, any pull back in financing poses further risk to demand. Record discounts of Rs0.15mn - Rs 0.5mn by all manufacturers have also failed to enthuse buyers. Availability of second hand trucks for sale remains very high and activity there could precede demand for new CVs. The silver lining seems to be LCVs, where sales have been relatively stronger. But here too, dealers mentioned that they are witnessing fatigue in sales. While M&HCV might report a growth in FY14 on a low base, possibility of a strong demand led growth appears bleak.
Two-wheeler dealers continue to remain weary of the demand environment and are pessimistic on near term growth. Most estimate no YoY industry growth in the next six months. Down-trading is clearly a trend being witnessed by most dealers, with a majority of them attributing it to not only high petrol prices, but also lower discretionary spending in the current inflationary environment. Share of sales on credit have considerably increased and all players (except Honda) have tie-ups for attractive financing schemes. On the basis of these interactions, we expect a mid-single digit growth rate for the two-wheeler industry at best.
Top Picks: Prefer bottom-up ideas to macro recovery themes - Our dealer survey re-iterates our belief that growth expectations for macro-recovery plays are very optimistic and chances of disappointment remain high. We prefer to be in stocks with a bottom up theme. Our top picks in the sector are:
Hero Motocorp , as expectations are low and valuations inexpensive. Also, we believe that concerns over market share loss are overdone
Tata Motors , given JLR is the principal driver, with new launches providing growth visibility unlike domestic recovery plays; trading at fair valuations
Mahindra & Mahindra , owing to a diversified product portfolio and expected success of new launches offsetting weakness in traditional product portfolio.
Also Read: Monthly auto sales update for February 2013: Motilal Oswal
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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