Tractor sales to remain strong in February; CVs, PVs likely to recover

“Demand for Medium & Heavy CVs (MHCVs) from the Infrastructure segment remains strong and the Cargo segment is also recovering, albeit slower than expected" said analysts at Motilal Oswal Financial Services Limited.

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The rising economic activities are aiding the sales growth in CV’s and the sales, trajectory may further improve moving forward. The demand from segments like Infra, Mining and E-commerce etc are likely to help in recovery. For MHCVs, both per-month retail sales and fleet operator profitability have been improving over the past few months say, analysts. Analysts at Nomura Research estimate 15% year-on-year growth in MHCVs February 2021

Though CV sales may still decline in FY21, strong growth is expected in FY22 on a low base of this year.

“In Feb 2021 for tractors, we estimate strong ~38% y-y growth for M&M (Mahindra & Mahindra Ltd) given the healthy demand and lower channel inventory" said analysts at Nomura. They expect upside risk to our 18% year-on-year industry growth estimate for FY21, which should normalize to 6% YoY in FY22.

The PV sales growth remains decent even as the supply constraints are limiting the growth. There is increased interest in its fitted CNG models due to higher petrol prices say, analysts. Volumes for Maruti Suzuki India Ltd/M&M/Tata motors ltd are expected to grow by 13.4% / 30% / 120% respectively as per MOFL analysts.

The tractor and PV sales volume growth also is to be aided by a much lower channel inventory.

M&M remains the top pick for many analysts having higher rural exposure (where recovery is faster), initiatives to address capital allocation concerns, and attractive valuations.

Two wheelers nevertheless continue to see tepid sales numbers. Inquiries during the month were lower for both urban (12-13% YoY) and rural (6-8% YoY) said analysts at Prabhudas Lilladher Research. Demand for entry-level has declined by 10-12% YoY while the premium segment (150CC and above) declined 15-16% YoY they added.

The sales can pick up with the start of the festive and wedding season as harvesting of the crop can lead to a further uptick in rural demand for two-wheelers.

The challenges to growth for PV/Two-wheeler, in particular, are posed by the jump in fuel prices over the past few months. This coupled with vehicle price increases in the back of input cost pressure, can have an adverse impact, limiting growth for two-wheelers and PV.