SME Times News Bureau | 25 Dec, 2019
A new report says that the auto industry is seeing signs
of demand stability across segments, after enduring tough 12 months.
According to Motilal Oswal Institutional Equities report the
stability has partly appeared due to high discounts, better availability of
finance and improvement in rural sentiment.
But it still needs to face the final challenge of Bharat
Stage 6 transition, the report cautioned.
"While the worst seems to be over, we don't expect secular recovery
considering last hurdle in the form of BS-6 transition," the report said.
With demand environment showing signs of stability and inventory under control,
"the BS-6 transition is likely to be less problematic" unlike BS-4,
it said.
"The BS-6 transition will pose bigger challenge for two-wheelers than
commercial and private vehicles given the magnitude of cost inflation,
possibility of a change in competitive positioning and the scope of value
migration," the report said.
Indian automakers are all set for transition to BS-6 from April 2020.
Some pre-buying for two-wheelers and diesel private vehicles was expected, but
it could be limited in case of commercial vehicles due to 30-40 per cent excess
capacity with fleet operators, the report said.
"The sizeable tax cut announced recently by the government improves the
long-term attractiveness of the auto sector as cyclical revival in demand would
be complemented by disproportionate improvement in RoEs due to lower
taxes," it said.
While Eicher Motors, Ashok Leyland, Escorts, Hero Moto, Bosch, Amara Raja,
Exide and CEAT may gain the most from the tax rate cut, Maruti and Tata Motors
could benefit the least, it said.
"Some of the OEMs have used the tax savings to directly or indirectly spur
demand," said Motilal Oswal report.