Demand recovery for automobiles continues in 3rd quarter: Motilal Oswal

The demand recovery for automobiles continued in the December quarter, with strong momentum witnessed in retail sales of tractors and passengers vehicles, according to a report.

According to the report by brokerage Motilal Oswal Financial Services, the recovery in sales has been stronger than expected across segments, excluding the three-wheelers, driven by pent-up demand, positive agri-economics and a shift to private from public transport.

On a wholesale basis, the report estimates tractor volumes to grow by 22 per cent year-on-year, passenger vehicle segment demand to rise 15 per cent, and two-wheelers 19 per cent on a low base of last year, it said.

Among the commercial vehicle segment, the light commercial vehicle demand is estimated to grow 1.5 per cent, while the decline is getting smaller for medium and heavy commercial vehicle (M&HCVs) with an estimated eight per cent drop during the third quarter, as per the report.

Three-wheelers are witnessing a quarter-on-quarter recovery in volumes.

"However, we do see near-term uncertainties on account of factors such as supply-side disruption due to a global shortage of semi-conductors, sharp commodity cost inflation led price increases, as well as risk to demand (from a price hike, fading benefit of Covid-19 to private transport, among others)," the report said.

The brokerage firm also said it expects the volume recovery in all segments to sustain in FY22, with core demand growing 5-7 per cent for two-wheelers/passenger vehicles/tractors, supported by the benefit of the low base of April-August 2020.

For the three-wheelers and commercial vehicles, a sharp recovery is expected in FY22.

"We expect the recovery in EBITDA margins to continue for the second straight quarter despite the initial impact of commodity cost inflation," it said.