Based on our forecasts, replacement demand could account for about 70% of demand in FY22/23
Auto demand remains in early stages of recovery
Auto demand remains in the early stages of recovery after two years of weakness (since Q2FY19) with improvements in June looking promising. Our channel checks with two-wheeler (2W) dealers indicate our caution on financing has not materialised. We believe margins have the scope for upside surprise in FY22, driven by cost cutting and a recovery in demand. We therefore raise our target PE multiples for the sector to in line with three-year historical average.
Registration data trend and 2W dealer checks – a cause for optimism
Original equipment manufacturer (OEM) commentary suggests bookings have bounced back sharply in June 2020. Our checks with 29 2W dealers indicates June 2020 demand surprised positively. Tier-2/3 cities are showing a growth trend, while tier-1 remains under pressure. Inventory levels are below average.