Repressed automotive demand impacted by rising gas costs and worth will increase from OEMs

The pent-up automotive demand has been affected by the excessive value of gas in addition to the worth will increase taken by OEMs within the present unlocking part in comparison with final yr.

In consequence, “2W” demand has been lukewarm whereas “PV” demand is extra resilient, given the comparatively higher income profiles of automotive clients.

“Within the present unlocking part, pent-up demand is lukewarm (not like final yr) as buyer sentiment has been partially affected by rising gas costs – gasoline costs are above Rs 100 in a number of states, which resulted in excessive working prices and worth will increase taken by OEMs to offset rising commodity costs, ”HDFC Securities stated.

As well as, demand within the rural section has not been as resilient because the earlier yr, with 2W OEMs seeing stagnant gross sales in June 2021. Nonetheless, demand for PV is holding up (as excessive revenue customers had been comparatively much less affected by COVID). “

The progress of the southwest monsoon shall be a key variable in figuring out the extent of the restoration, the brokerage stated.

As well as, the corporate identified that uncooked materials costs have remained agency, with OEMs elevating costs to partially offset the above.

As well as, the sudden explosion of the COVID wave in April-Might 2021 had resulted in short-term manufacturing stoppages, which can have an effect on profitability this quarter.

The corporate expects restricted margin for EPS upgrades, as a consequence of excessive progress expectations and headwinds on margins as a consequence of agency commodity costs.

“Due to this fact, the auto index ought to transfer consistent with the broader market. We reiterate our desire for shares which have a various geographic presence – Bajaj Auto, Tata Motors and Bharat Forge,” the brokerage agency stated.

“We even have a ‘purchase’ on Maruti amongst home OEMs as a consequence of its product portfolio together with different gas variants (CNG and hybrid fashions to come back).”

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