homenewsKotak Institutional Equities warns of a sharp moderation in passenger vehicle demand
news | Dec 29, 2022 3:06 PM IST

Kotak Institutional Equities warns of a sharp moderation in passenger vehicle demand


Kotak Institutional Equities a ‘buy’ rating on M&M, ‘add’ on Tata Motors and a ‘sell’ on Maruti Suzuki.

The auto sector, especially the domestic passenger vehicle (PV) segment, may witness a sharp moderation in growth in fiscal year 2023-24 due to waning demand among other factors, Kotak Institutional Equities said in its report.

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The brokerage downgraded growth estimates for the domestic PV segment in India to a 3 percent year-on-year in financial year 2024 from a forecast of 8 percent earlier.

Rishi Vora of Kotak Securities said that the domestic passenger vehicle market has already seen an estimated growth of 24 percent in the current financial year. "Waning of the pent-up demand is quite likely going into financial year 2024," he told CNBC-TV18 in an interaction.

He also said that cost pressures related to upcoming emission and safety regulatory norms will further increase the cost of vehicles, which could worsen the impact on demand.

Vora pointed out that higher CNG prices could also impact the entry-level hatch demand in the next financial year. “Almost 11 percent of the volume in the domestic PV industry comes from the CNG vehicle segment. With CNG prices continuing to remain at an elevated level, it would defer the demand, or at least the replacement demand, for CNG vehicles,” he said.

Higher interest rates and higher inflation, which would impact household savings can further hit demand for cars in the coming year, according to Vora.

In terms of specific segments, Kotak Institutional Equities expect the SUV segment to beat the overall trend and continue to improve until financial year 2025.

Talking of auto companies, Kotak has cut EPS (earnings per share) estimates for Maruti Suzuki India Ltd., Mahindra and Mahindra Ltd. and Tata Motors Ltd.

However, it continues to have a ‘buy’ rating on M&M, ‘add’ on Tata Motors and a ‘sell’ on Maruti Suzuki.

“EVs (electric vehicles) would be a bigger trigger for M&M as the XUV 400 is set for a launch next year,” Vora said. “However, pricing of the car would play a critical role in determining the impact of the launch on the company’s overall sales,” he added.

The company’s tractor segment also continues to be steady and should provide support to M&M’s overall numbers.

Vora expects some volatility for the Tata Motors stock which has corrected substantially this year. After a couple of quarters, he expects some recovery in terms of JLR volumes and also in the Tata Motors stock price.
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