Sales of two-wheelers, tractors rebound
The second of the five-part series looks at the sector, which has seen sales rebound to pre-covid levels
Amidst the gloom and despair spread by the pandemic, there are a few bright spots. Business Standard looks at five such sectors witnessing ‘green shoots’. The second of the series looks at auto sector that has seen sales rebound to pre-covid levels.
A quick year-on-year recovery in sales for tractors and a month-on-month rebound for two-wheelers are giving a much-needed respite to the pandemic-bruised auto industry. Pent-up demand, coupled with these segments’ high dependence on rural markets, where the spread of the infection is relatively low, has aided the recovery. Also, a good agricultural harvest, increase in minimum support prices for crops, and a timely arrival of monsoon, besides a slew of government schemes, have come as a bounty.
After falling to record lows in April, tractor sales saw a recovery in May and rose 20 per cent yearon-year in June. Both sales and production increased at an 18-month-high rate, according to the Tractor Manufacturers Association (TMA). Encouraged by the trend, the TMA estimated sales to grow by 5 per cent year-on-year for the financial year.
Hemant Sikka, president for the tractor and farm equipment sector at market leader Mahindra & Mahindra (M&M), is jubilant. Last month, M&M had record sales of 36,000 units, almost 95 per cent of its preCovid-19 volumes. But, Sikka stopped short of making projections. “A lot depends on pandemic-related factors,” he said, adding, “the struggle is on the supply side because there are localised lockdowns.”
While cash registers are ringing at tractor companies, twowheelers are not far behind. This segment, too, is seeing a consistent month-on-month recovery. The demand has been fuelled largely by people’s preference for owning vehicles and aversion to public transport.
Take, for instance, the case of Satnam, who works at a restaurant in Mumbai. When he went to his native place in Rewa, Madhya Pradesh, for a 15-day break last month, he pawned his wife’s jewellery to buy a Hero Passion Pro 110 (priced ~65,470, ex-showroom). “With no bus or auto-rickshaw plying in our area due to the lockdown, I had to buy a motorcycle,” said Satnam, adding that a salary cut left him with no other option.
This is a reason why two-wheeler manufacturers are seeing a rise in demand, mostly in rural markets. At present, most two-wheeler firms are selling 90-95 per cent of what they used to in the pre-covid phase, according to company executives.
Rakesh Sharma, executive director at Bajaj Auto, said recovery would have been quicker had it not been for local lockdowns. “The demand is coming to normal levels wherever there is no Covid-19-related disruption,” he said.
Market leader Hero Motocorp, half of whose sales are in rural markets, has been one of the biggest beneficiaries of the sales upturn. Leading the revival in the domestic two-wheeler sector, Hero sold 450,744 units in June, registering record sequential growth of more than four times over the previous month, during which it had dispatched 112,682 units. “In a sign of positive sentiment and a revival in consumer demand, our sales have reached 90 per cent of our pre- Covid volumes,” said a spokesperson for the company.
“Customer demand has been positive across almost the entire country except in the markets badly hit by Covid-19, such as Maharashtra and Gujarat,” the spokesperson said, adding, “A combination of factors, including the forecast of a normal monsoon, a bumper rabi crop, and the upcoming festive season should keep the momentum going over the next few months.”
Even as Hero remains bullish, its dealers are cautious. “This month we are not seeing the same traction we saw last month, and we expect sales to taper off a bit,” said a dealer.
The marriage season in states like Uttar Pradesh, Rajasthan, and Bihar has also supported volumes.
The factors that boosted two-wheeler sales were also behind the revival for tractor firms. TMA President T R Kesavan said a combination of improvement in harvest and procurement; disbursements under the Pradhan Mantri-kisan programme and utilisation of the Mahatma Gandhi National Rural Employment Guarantee Scheme funds; and the deployment of workers in capacity-building activities boosted agriculture prospects and rural sentiment.
The inventory levels at the factory of Escorts Agri Machinery and its channels have been the lowest ever, a spokesperson for the company said. It was able to run its factories in multiple shifts to manufacture at about 90 per cent of its capacity. “But the supply-chain situation, though better than before, continues to be volatile,” the spokesperson said.
“Improved crop realisation and government-aided measures have added to the disposable income,” Mahindra’s Sikka said. As a result, tractor buyers are willingly to pay a higher margin of 30 per cent, against 10-15 per cent earlier. “This, in turn, has encouraged the finance companies to disburse more,” he said.