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MOSL: AUTOMOBILES (GROUND REALITY)-Auto demand in Maharashtra weak across segments

AUTOMOBILES (GROUND REALITY): Auto demand in Maharashtra weak across segments…impacted by weak farm sentiments; inventory at record levels

 

• On a visit to major urban and rural markets in Maharashtra, we interacted with key participants from the automotive eco-system to understand the on-ground demand environment across segments. Auto demand was impacted due to a steep decline of 30-40% in wholesale prices of key crops this season, while the drought-like situation in key rural markets further worsened demand.  In the present environment, we believe that an upsurge in demand will hinge on farm sentiment revival in these regions. Key takeaways:
• Auto demand was weak in the key markets of Maharashtra led by negative farm sentiments. Weak demand was not only led by steep decline of 30-40% in wholesale prices of key crops this season, but also due to the drought-like situation in key rural markets (Ahmednagar).
• 2W retail was the worst hit among auto segments, declining 15-20% in FY19. Negative farm sentiments along with increased insurance cost resulted in weak enquiries.
• Increasing preference for scooters has been noticed in the rural areas (35-40% share), led by better road infrastructure. Also, rural families who already own a motorcycle usually consider buying a scooter as their second option.
• Royal Enfield's retail continues to decline across regions, impacted by (a) postponement of purchase by customers in key rural areas, (b) significant increase in purchase cost led by mandatory insurance and regulations, and (c) competition from Jawa.
• PV demand trend remains mixed across regions with enquiries-to-sales conversion continuing to remain weak for the existing models, while new product launches attracted footfalls.
• Tractor demand was weak led by adverse farm sentiments and low subsidy release by the government.