AUTO & AUTO COMPONENTS

With factories shut, supply chain dislocated, and showrooms closed, auto companies generated zero sales in April, and the June quarter will be a washout. Though companies are resuming production, given the limited retail network, and weak consumer sentiment due to job losses and falling incomes, an uptick is unlikely before the festival season, which starts in September.

If things improve, the sector still could post a year-on-year volume dip of 10-15 per cent in FY21; in the worst-case scenario, the fall could be 40 per cent. Trucks will bear the biggest brunt, while tractors and entry-level motorcycles should see a quicker recovery on account of rural exposure and down-trading. A surge in vehicle costs because of regulatory norms (BS-VI, insurance) is another reason for analysts preferring segments at the lower end of value chain.

Rural-segment players, such as Hero

Motocorp, M&M, and Escorts, may face less impact. Within two-wheelers, exporters Bajaj Auto and TVS Motor could be hit as major markets in Africa, South America, and Southeast Asia are hit by a combination of lockdowns and slowing economy because of falling oil prices.

Fixed costs as a percentage of sales range between 7 per cent (Bajaj Auto) and 34 per cent (Motherson Sumi). Given lower volumes and negative operating leverage, companies with high debt and fixed costs could face difficulty. Those sitting on cash, such as Bajaj Auto, Hero Motocorp, Eicher Motors, and Balkrishna Industries are better placed.