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Maruti to benefit most once chip shortage issue gets resolved: LKP Securities

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Channel checks with dealers suggest that demand is seriously increasing for PVs, the footfalls, the enquiries, the conversion rates are quite high and people are ready to wait for good models of Maruti, M&M and Tata even if the waiting period is as high as eight to nine months.

The auto sales numbers for the month of September have been a mixed bag. Discussing the numbers in detail, Ashwin Patil, research analyst, LKP Securities, is of the view that the numbers were weak and on expected lines because of chip shortages that have been plaguing the passenger vehicle players. However, Patil expects Maruti to be the best player to take advantage of the burgeoning demand once the semiconductor shortage issue gets sorted out.
Patil said, “The sales decline in September was quite expected for Maruti as well as M&M because the semiconductor manufacturers are facing the crunch. But going forward, once this issue gets sorted out,s Maruti will be the best player to take advantage of the burgeoning demand.”
“Channel checks with dealers suggest that demand is seriously increasing, the footfalls, enquiries and conversion rates are quite high and people are ready to wait for good models of Maruti, M&M and Tata even if the waiting period is as high as eight to nine months. This tells us how strong the demand is, so once the chip shortage issue gets sorted out, these players will come back into the forefront,” he specified.
On demand for two-wheelers and passenger vehicles, Patil said, “The demand and supply are moving in exactly opposite directions for both these segments. For passenger vehicles, demand is not an issue but for two-wheelers, demand is definitely an issue. Since BSVI got implemented last year, the two-wheeler makers had taken a lot of price hikes and that has hurt sentiments in the mass segment as well as the executive segment of two-wheelers. Secondly, last year after the COVID wave subsided, the two-wheelers were the first to bounce back and that has made the base quite high. So, these are the reasons due to which the two-wheeler demand is not as per expectations.”
According to Patil, tractors are moving quite steadily. “Over the last couple of months, the rains were extreme in certain states and scanty in certain other states. So that is the reason why tractors are not performing well. However, on a high base of last year, definitely, we expect tractors to post mid-single-digit kind of growth this year. It is not as bad as two-wheelers, where demand continues to be an issue,” he mentioned.
For Hero MotoCorp, the two-wheeler September numbers have crossed over 5.3 lakhs. So they seem to be doing better but for Eicher Motors on the other hand, there seems to be no end to their struggles.
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Patil said, “As far as two-wheelers and Hero MotoCorp is concerned, we have seen that the rural demand got hurt because of the second wave of COVID which penetrated deeper into the country and that hurt demand but this month maybe, we are seeing some green shoots in the rural demand. Going forward, the Rabi crops are expected to be good and there has also been some recovery in monsoon towards September end, so maybe that could be the reason why Hero is performing better than expected. On the other hand, for Eicher Motors, the demand is getting hurt, maybe the production is also getting hurt because they are present more in the premium bikes segment and that is the reason why chip shortage is there, also why their Royal Enfield business is getting hurt.”
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