Automotive outlook: pent-up demand from the auto industry affected by high fuel costs

NEW DELHI: The pent-up demand for automobiles has been affected by the high cost of fuel as well as the price increases taken by OEMs in the current unlocking phase compared to last year.

As a result, “2W” demand has been lukewarm while “PV” demand is more resilient, given the relatively better revenue profiles of automotive customers.

“In the current unlocking phase, pent-up demand is lukewarm (unlike last year) as customer sentiment has been partially affected by rising fuel prices – gasoline prices are above INR 100 in several states, which resulted in high operating costs and price increases taken by OEMs to offset rising commodity prices, ”HDFC Securities said.

In addition, demand in the rural segment has not been as resilient as the previous year, with 2W OEMs reporting stagnant sales as of June 21. However, PV demand is holding up (as high income consumers were relatively less affected by Covid). ”

The progress of the southwest monsoon will be a key variable in determining the extent of the recovery, the brokerage said.

In addition, the company pointed out that raw material prices have remained firm, with OEMs raising prices to partially compensate for the above.

“In addition, the sudden explosion of the Covid wave in April-May 2021 had resulted in temporary production stoppages, which will impact profitability this quarter.”

Additionally, the company expects limited margin for EPS upgrades, due to high growth expectations and headwinds on margins due to firm commodity prices.

“Therefore, the automotive index should move in line with the broader market. We reiterate our preference for stocks that have a diverse geographic presence –

, and, ”the brokerage firm said.

“We also have a ‘buy’ on Maruti among domestic OEMs due to its product portfolio including alternative fuel variants (CNG and hybrid models to come).”