Car and truck sales hit the slow lane

Hit by disruption at Maruti, drop in Tata CV numbers

SALES of automobiles — passenger vehicles and trucks — seemed to have hit a speed breaker in June. While production at market leader Maruti Suzuki was hit by a disruption in supplies of some key inputs, sales of large commercial vehicles (CVs) at Tata Motors fell 11% year-on-year, reflecting uneven demand.

Maruti, India’s biggest carmaker, reported volumes of 92,133, down 10.2% y-o-y, the first time in a year that it has fallen short of its target to sell 1 lakh cars a month. While South Korean manufacturer Hyundai didn’t do too badly, it failed to hit the double-digit mark, clocking in a rise of 9.7% y-o-y; both its compact and premium hatchbacks — the Grand i10 and the Elite i20 — did well.

The subdued volumes of CVs — considered a yardstick for the state of the economy — are worrying. After a reasonably good increase in April and May — 13% and 23%, respectively — volumes of M&HCVs at Tata Motors fell 11% y-o-y to 10,147 units in June. At Ashok Leyland, too, growth moderated to just 8% y-o-y. Industry watchers say it may have lost market share in the southern region because BS-III vehicles in Andhra Pradesh and Telangana may not have been registered. “The elections in Tamil Nadu in May also resulted in a slowdown in sales,” one observed.

Analysts say that dealers in north India have been talking of less than the normal quantum of freight being ferried in the region. “That may have hit the sales of trucks. Also, the 20% increase in diesel prices without a matching rise in freight rates may have also impacted demand for new vehicles,” an analyst said.

Ravi Pisharody, executive director, commercial vehicles at Tata Motors, had noted after the firm’s Q4FY16 results that although the market had recovered, competition had increased and players were resorting to discounting.

Meanwhile, Hero Moto Corp had a poor June, reporting a volume increase of just 1.3% y-o-y, an indication of the continuing stress in rural markets after two weak monsoons. Analysts point out that key motorcycle markets such as Uttar Pradesh, Rajasthan, Andhra Pradesh and Madhya Pradesh are primarily agricultural economies and with rural wages having tapered off over the last year or so, disposable incomes have shrunk.

While TVS Motors’ numbers may appear better — 11% rise y-oy — the increase comes off a small base of 2,10,920 units in June 2015. However, Honda Motorcycles, which commands almost a 30% share of the two-wheeler market, reported a strong 23% y-o-y rise in volumes to 4,08,141 units. Armed with new capacity in Gujarat, Honda has regained market share in scooters and now has a share of 59%, according to analysts at Religare Research.

Within the passenger car segment, utility vehicles (UVs) continue to steal the show — from Maruti’s Vitara Brezza, Hyundai’s Creta and Mahindra & Mahindra’s TUV 300 and KUV 100, they’ve done well. M& M turned in a reasonably good show posting a growth of 7% y-o-y.

While car volumes for the three months to June may have disappointed analysts who were expecting double-digit growth, it could turn out to bea cracker of a festive season for the auto sector given how central government employees have got a big hike in salaries, following the acceptance of the 7th Pay Commission’s recommendations. Kotak Institutional Equities wrote its analysis suggested the hike could lead to 5% incremental demand for passenger vehicles, assuming 10% of total salary increase is spent on purchase of automobiles. “Additionally, there could be further 7-8% incremental growth in PVs over the next two to three years due to similar pay increases by the state governments,” the report noted.

Rakesh Srivastava, senior vicepresident, sales and marketing, Hyundai Motor India, said models such as the Grand i10, Elite i20 and Creta were doing well. “We expect the good monsoon and the large salary hikes of government employee to have a significant impact on our volumes,” Srivastava said.

Analysts at Motilal Oswal say M&M is likely to witness robust growth in UVs, driven by the KUV100, the waiting period for which is two to three months.