Auto demand recovery weaker than expected: MOFSL

NEW DELHI: Automobile demand recovery has been weaker than expected post the lifting of second lockdown in June 2021, said Motilal Oswal Financial Services Limited (MOFSL).

Accordingly, while PVs (passenger vehicles) continue to witness healthy recovery, whereas two-wheelers and CVs (commercial vehicles) are subdued.

“The outlook for tractors is also muted, especially considering the high base of 2HFY21,” the report said.

“Additionally, the semi-conductor shortage is intensifying, with 2QFY22 likely to see the worst impact. While there is hope that semi-conductor supplies would improve in 2HFY22, OEMs and vendors are currently living by the day.”

Besides, the report pointed out that financing has been getting stringent for CVs and two-wheelers.

“Lastly, commodity prices seem to be stabilising for now. Coupled with price increases taken and cost-cutting initiatives, EBITDA margins should start looking up from 2HFY22.”

In terms of sectoral picks, MOFSL prefers ‘4Ws’ over ‘2Ws’ as ‘PVs’ is the least impacted segment currently and offers a stable competitive environment.

“We expect the CV cycle to recover and gain momentum towards 2HFY22.” “In our estimates, we build in strong recovery in 2HFY22 and beyond, with FY22 growth at 16 per cent, 28 per cent, 28 per cent, 55 per cent, 4 per cent for 2W, PV, LCV, M&HCV, Tractors.”

“We prefer companies with higher visibility in terms of demand recovery, a strong competitive positioning, margin drivers, and balance sheet strength.”

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