Jun-20 Volumes expectations: Sales to rise over 2x from May-20 levels for Hero, Maruti - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities on the Auto Sector

With the country opening up in a phased manner and with more relaxation norms in place, we expect sales to improve considerably for 2W OEMs and for entry-level cars. Sales should improve (improve over 2x from May levels) for Maruti, Hero.

Sector stance:

Hero (BUY) and Maruti Suzuki (BUY) are our top picks as these OEMs are most likely to benefit from downtrading trends and from rural demand. We reiterate our BUY on Escorts as it will benefit from its extended relationship with Kubota/normal monsoons. We have a cautious stance on premium discretionary (Eicher) and CVs (Ashok Leyland).

We expect pent-up demand in the entry/executive segment as consumers are down-trading. This demand will also be driven by a shift toward personal mobility. Hero Motocorp's MD, Mr Pawan Munjal has highlighted that the OEM is witnessing daily retail sales of ~16k-18k units.

Also, a media report recently highlighted, Maruti Suzuki is returning to 100k units p.m. production levels from Jul-20 onwards (vs. ~20k units in May-20). This production target indicates a much faster than expected recovery in vols.

Tractor sales in Jun-20 may show a strong recovery owning to robust rabi harvest, timely arrival of the monsoon to aid Kharif sowing, and government reforms.

Source : Equity Bulls

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