 "Elections & rural demand to Motown's rescue?")
After growth screeched to a grinding halt for months on end, is there finally some momentum returning to Motown? Auto sales numbers of some of India’s biggest auto companies seem to suggest a slight improvement ahead of the festive season, which is a critical month for carmakers. September has been a mixed bag overall, with Maruti Suzuki, Honda and Ford showing a small jump in domestic sales while others like M&M, Tata Motors and Hyundai continuing to report a decline in their sales numbers.
Overall though, on a month on month basis, total sales grew 17.8% led by the inventory build up ahead of the festive season. This signals that automakers are anticipating strong demand. But analysts caution that it is too early to celebrate.
“This is just a mental build up, companies usually stack up inventory ahead of Diwali, but we are not expecting a revival at least for the next 6 to 8 months based on the initial feedback we have got from the industry” says Hitesh Goel, Senior Analyst – Automobiles at Kotak Institutional Equities, who feels passenger and UV sales will continue to remain flattish at least for some more time.
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High interest rates, soaring fuel costs as well as an increase in car prices has kept car buyers away from showrooms for a major part of the last year, when the auto sector saw continual de-growth. While the month of August saw sales snapping a 9 month declining streak with domestic car sales growing by 15.3%, it was largely as a result of a low base due to the month long lockout in the same period last year at Maruti’s Manesar plant.
Automakers are now waiting to see what trends emerge in the next 2 months, especially during Diwali which normally sees demand spike by as much as 20%, to ascertain whether a sustained recovery is on the cards.
“If I go by billing, the industry has been little better in September than it has been in monsoon, that is in June-July-August. But I will wait till October and Diwali to decide whether the worst is over” Pawan Goenka, President Automotive – M&M told CNBC TV18 earlier in the day.
One definitive trend that seems to be emerging though is a pickup in sales of vehicle categories that are dependent on rural demand.
Two wheeler makers like Bajaj Auto and Hero Moto Corp reported a 3% and 16% growth in sales respectively, while Mahindra’s tractor sales were up a solid 33% on the back of a good monsoon and harvest that has boosted farmer incomes.
Going forward, election spending will further prop up rural demand, say analysts.
“Election years are usually good for the auto sector. Coupled with higher MSPs and a good monsoon, we could see some pent up buying taking place. Sales of rural UVs could show an uptick by the end of the year, along with tractors and two wheelers which will continue to do well” says Nishant Vass, Research Analyst – Auto and Ancillary at ICICI Direct.
Urban demand will continue to languish for some more time though, especially if interest rates continue to climb and banks squeeze out lending. State Bank of India, in a pre-emptive move recently tightened eligibility limits for car loans to avoid potential defaults. That coupled with the fact that not too many new launches are expected in the months to come, will weigh in on urban demand at least for some more months.
Automakers that launched new models, like Honda, with its entry level sedan Amaze and Ford with its compact sports utility vehicle EcoSport showed double digit growth in September. But the line up in the coming months isn’t very impressive.
Barring two wheeler makers like Bajaj Auto and Hero Moto Corp which are expected to come to the market with a slew of new launches during the festive season, most big 4 wheeler launches are expected only around the end of the fiscal.
It’s a long way to a full fledged recovery then, but with the rain gods smiling and the election bugle set to be sounded, looks like it’s the rural roads that will lead to it.