Awaiting festive cheer

Led by Maruti, the sector has lost about 20 per cent of its market value since the highs recorded at the end of August. India’s largest passenger vehicle (PV) maker is perhaps a good reflection of the problems that beset the sector. At the heart of the Street’s worries is slowdown in volumes.

Maruti, for example, reported flat volumes for September as compared to 10 per cent growth for the fiscal year-to-date period.

Overall PV growth in September fell 5.6 per cent, its biggest monthly fall in the fiscal year so far. In fact, PV sales have declined for three consecutive months as the sector struggles with muted demand, floods in Kerala and higher ownerships costs, leading to postponement of purchases. It is not surprising that the association of auto makers (SIAM), has cut its passenger volume forecasts for FY19 to around 9 per cent from 9-11 per cent earlier. Analysts at Elara Capital have cut their PV growth estimates to 6 per cent from 9 per cent for FY19.

Though all players will be impacted, the extent is different for various companies. Floods in Kerala, for example will have most impact on Maruti and Eicher Motors as over a tenth of sales for each comes from this state. Maruti wll be more impacted than most from the depreciation of the rupee against the yen given its high exposure to imports, which account for about 22 per cent revenues.

Further, a 5.5 per cent royalty outgo will also hurt the company given the currency situation. The impact on two wheelers could be broadly similar.

The higher cost of ownership will pinch two wheelers more than any other segment, especially on the insurance issue. HSBC analysts led by Yogesh Aggarwal say the biggest hit to demand is from higher insurance cost, for two wheelers in particular.

While relaxation on personal accident cover should help, the higher insurance will pinch low ticket items more as buyers of entry level bikes are most sensitive to price hikes.