Insights

Deja Vu: Sudden Brakes To Auto Industry As COVID-19 Second Wave Hits India3 min read

May 5, 2021 3 min read

Deja Vu: Sudden Brakes To Auto Industry As COVID-19 Second Wave Hits India3 min read

Reading Time: 3 minutes

As the Indian Automobile industry was recovering from the 2020 pandemic-induced lockdown, another big wave of COVID-19 got the business on its knees.

A sudden and sustained rise in COVID-19 cases across the country has caused localised lockdowns and the dealers to shut their showrooms.

As per the media reports, not only have new orders fallen, people are even cancelling the bookings made earlier. In states like Uttar Pradesh and Madhya Pradesh, dealers are reporting a 40% to 60% fall in sales compared to the pre-COVID data.

As the Federation of Dealers Association reported the automobile sales numbers in the month of March it warned that the lockdown in Maharashtra will have a “catastrophic impact” on April sales, as dealers will not be able to realise the potential of festivities like Ugadi, Gudi Padwa, Baisakhi and Poila Boishakh. The state contributes 10-11% of auto retail. Overall, FADA maintained extreme caution for the month of April as Covid rises to newer highs. The April sales report is yet to be published by FADA.

Kenichi Ayukawa, President, SIAM, and the CEO of the country’s largest carmaker Maruti Suzuki India Ltd. reportedly said that “A deep structural slowdown in the industry even before the pandemic, combined with the impact of COVID-19 in 2020-21, has pushed all vehicle segments back by many years. Recovery from here will require time and effort, by all stakeholders.”

Production Halt

Several automobile manufacturers in the country have reportedly paused their productions starting May 1. While some are calling the shutdown their annual maintenance protocol, others are citing the safety of those employed in factories while halting operations, media reports said.

Hero MotoCorp, one of the leading two-wheeler manufacturers, had announced a nationwide shutdown of its plants for four days between April 22 and May 1. One of the leading two-wheeler manufacturers reportedly said that despite its 4-day shutdown and production halt, it will not have an impact on its ability to meet demand, as per its exchange filing.

Increase in Vehicle Prices

Post the 2020 pandemic induced lockdown, automobile sales had recovered almost immediately, but would the history repeat itself this time?

The media reports analysts believe that the optimism this time is scarce and people have lesser savings than they did last year. So, the pent-up demand may be missing this time around.

Adding to that the automobile manufacturers have to take a price hike due to the BS-VI shift and increase in raw material prices such as steel.

The Shares Story

History has repeated itself with the second wave of COVID-19. Shares of automobile companies have fallen in the month of April.

The nifty Auto index has fallen as much as 2.25% in the month of April dragged by its heavyweight components.

Shares of Maruti Suzuki India, Hero MotoCorp, and Tata Motors have fallen 5.89%, 3.24%, 2.63%. Investors are worried about the sales during the lockdown and far-fetched recovery post that.

Fundamental & Technical Dose

Source – Annual Report & Market Data

Disclaimer – This content is purely for informational purpose and in no way advice or a recommendation. Investment in securities market are subject to market risks, read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory.
Paytm Money Ltd SEBI Reg No. Broking – INZ000240532. NSE (90165), BSE(6707) Regd Office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi – 110019.