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Expect two-wheelers and entry-level cars to bounce back first: HDFC Securities

‘The demand has definitely picked up on the rural side’

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Last Updated: Jun 02, 2020, 12.39 PM IST
Aditya Makharia HDFC Sec
Our thesis is that the entry level and the executive segment within two-wheelers are the ones which will bounce back first. (Photo: LinkedIn)
There will be some stress on the premium discretionary side as they are of more value and are more expensive, says Aditya Makharia, Institutional Equity Research Analyst.

What are the initial checks indicating in terms of demand? Are we seeing a revival of rural leading? Are there enough triggers in place?
Yes, rural as we have been highlighting for a while is the one which will hopefully rebound first. We have just seen some tractor numbers come out from Escorts and to our surprise, the numbers are much higher than estimates. They have reported almost a flat sale in excess of 6,000 tractors. What we are seeing is that 75% to 80% of dealerships on the tractor side have certainly opened up. Even for two-wheelers, whatever dealerships have opened up, most of them are on the rural side. Customers are giving enquiries because everybody wants to purchase some sort of an entry vehicle. That is the feedback we are picking up from the rural side.

On the urban though, it is more mixed. There are still some red zones yet. Even if dealerships have opened up, they are working at very low operating levels. There are manpower issues. So yes, on the rural side there is definitely a lot more interest at this point of time.

If indeed rural is actually leading the recovery, after tractors, where do you see the first signs of a bounce coming in? Is it going to be passenger vehicles or is it going to be the smaller ticket size, that is, the two wheelers?
I feel it is going to be a smaller ticket size; whether it is a car or a two-wheeler. Our thesis is that the entry level and the executive segment within two-wheelers are the ones which will bounce back first. Similarly, within cars, an Alto or Wangon R or S-Presso models will see the demand coming back. There will be some stress but probably it would be on the premium discretionary side, which are of more value and more expensive products.

There was a recent survey done in Mumbai. I think it was by one of your sister concerns where 60% of the people who were polled said that they have reservations when it comes to using public transport; be it passenger trains, locals or the buses. And this kind of sentiment is even being echoed in smaller cities. You will be surprised that in areas like Salem and smaller towns, there are similar sentiments coming through. So we think the bounce will happen in two-wheelers and cars but it will be at the entry levels.

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