Automobile demand in June skewed in favour of passenger vehicles, tractors

Automobile demand in June has remained skewed in favour of passenger vehicles (PVs) and tractors, said Motilal Oswal Financial Services (MOFSL) in a report.

According to the report, commercial vehicles (CVs) and two-wheelers' (2Ws) sales are yet to catch up.

"June '21 saw a gradual lifting of lockdown restrictions across states, with a good recovery witnessed in PVs and tractors."

"Current valuations largely factor in a sustained recovery (our base case), leaving a limited margin of safety for any negative surprise."

According to MOFSL: "We prefer 4Ws over 2Ws, as PVs are the least impacted segment currently and offer a stable competitive environment."

"We expect the CV cycle to recover and gain momentum towards 2HFY22. We prefer companies with a higher visibility in terms of a demand recovery, a strong competitive positioning, margin drivers, and balance sheet strength."

Besides, MOFSL pointed out that 2Ws, CVs, and tractors were above our muted expectations, while PVs were in line.

"Based on weak feedback for 2W or M&HCV retails, there seems to be a further inventory build-up in 2Ws."