Automakers on downhill drive in November, analysts see recovery in Q4

The festive season last year had brought lot of cheer to the sector and especially to the passenger vehicles (PV) where pent-up demand led the revival in across markets.

This year, the pent-up demand dried out by September and dampened the volumes further for November.

The rural markets are yet to recover from the impact of the second COVID wave which, coupled with delay in harvesting of kharif crops due to extended monsoon, has hit cash flows and, in turn, the demand for entry level two-wheelers and tractors.

Passenger vehicles continued to reel under the global semiconductor crisis that affected production. Despite a robust demand for new as well as existing products, OEMs are unable to produce the vehicles. Chip shortage has also affected the sports and premium two-wheeler segments.

“The only bright spot we observed this month was the M&HCVs (medium and heavy commercial vehicles) which have all their underlying parameters in place,” said LKP Securities in its update on the sector. Even in FY21, they saw a late recovery, which is helping the CV numbers look even stronger YoY, it said.

Light commercial vehicles (LCV), however, had a subdued November on a high base of last year.

Segmental Performance

Let’s take a look at the performance of different sectors of the automobile industry during November 2021.  

Passenger Vehicles

The PV segment recorded 12.5 percent on-year drop due to chip shortage which led to production cuts. Exports turned positive with an on-year growth of 127.4 percent.

Tata Motors performed the best in this segment with 38 percent YoY growth in its sales volume to 29,778 in November. Electric Vehicle (EV) sales grew 324 percent, while conventional ICE (internal combustion engines) vehicle sales climbed 32 percent.

Largest passenger vehicle manufacturer Maruti Suzuki continued to be marred by production cuts. It saw a volume loss of 9.2 percent on a yearly basis to 1,39,184 units. The company expects the situation to improve from December when production cuts will come down to 15-20 percent from 50-60 percent over the last 3-4 months.

Volumes for Mahindra & Mahindra (M&M) – including UVs and pick-ups –  declined 4 percent YoY and 2 percent MoM.

Two-Wheelers  

Demand for 2Ws in the domestic markets stayed weak due to muted rural demand (delayed harvesting) and tepid festive sales. TVS, Bajaj Auto, Hero Moto Corp and Royal Enfield registered YoY declines of 29 percent, 23 percent, 41 percent and 24 percent, respectively.

Export demand was robust with TVS Motors reporting 29 percent growth, while the volumes for Bajaj Auto remained flat on high base.

“Dealers in North Indian states highlighted that demand is likely to be supported by the onset of auspicious marriage dates. However, BS-VI and commodity-related price hikes and high petrol prices are leading to a stress on demand,” said JM Financial in a report.

December is a seasonally weak month owing to a change in manufacturing year and momentum in 4Q would be contingent upon (a) improvement in rural sentiment and (b) response to new EV launches, it said.

Commercial Vehicles

Total CV volume increased 8 percent and 3 percent YoY for Tata Motors and Volvo Eicher (VECV) but declined 4 percent YoY for Ashok Leyland and 21 percent for M&M, which continue to face supply chain constraints.

In the MHCV (mid and heavy commercial vehicles) segment, volumes for Tata Motors increased 10 percent YoY, while Ashok Leyland registered a marginal decline of 2 percent. Overall, the MHCV volumes were 30-50 percent below March 2021 levels.

In the LCV (Light Commercial Vehicles) segment, Ashok Leyland and M&M volumes declined 11 percent and 22 percent YoY, while stayed flat for Tata Motors and VECV.

Bus segment stayed on the recovery course in November at close to 50 percent of the normal level.

Tractors 

Tractor sales suffered severe dents due to weak rural demand because of delayed harvesting and floods in some places and also on the high base of last year.

M&M domestic sales declined 17 percent YoY and 43 percent MoM to 26,000 units, while the domestic sale for Escorts stood at 6,500 units, which is a decline of 33 percent YoY, and 49 percent MoM. 

Outlook

“We continue to remain positive on the sector despite near-term challenges of COVID-19-related disruptions and chips shortage. The PV segment, both for 2W and four-wheelers (4W), is expected to remain strong amid COVID-19, as a preference for personal transport,” said a report from Sharekhan.

Near-term 2W domestic demand is however contingent on realisation of kharif crops and marriage-related sales.

“In the PV segment, wholesales in near-term are likely to be a function of normalisation of chip supply as the underlying demand remains robust,” said JM Financial in its report.

The brokerage expects tractor demand to be supported by healthy agri-pricing, good kharif harvest/rabi sowing and continued strong government support to all agri activities. However, growth may stay muted due to high base.

The brokerage firm Sharekhan expects sequential improvement in M&HCV sales to continue, driven by an expected rise in e-commerce, agriculture, infrastructure, and mining activities. “We expect strongest recovery in the CV segment in FY2022 and FY2023, driven by improved economic activities, low interest rate regime, and better financing availability,” it said.

The demand for bus and three-wheeler (3W) segments is expected to improve gradually, as corporate office and educational institutions open.