Highlights: - Disappointing set of numbers from auto majors in all segments - New axle load norms, tight liquidity and non-availability of finance weigh on CVs - Lower Rabi sowing than expected pushed down tractors sales - Two-wheeler and passenger vehicle segments continue to disappoint - A rate cut in the upcoming RBI policy meet may act as a catalyst for the sector --------------------------------------------------
Indian automobile industry continues to falter, as is evident from May sales numbers. Demand remains soft because of multiple headwinds the industry is facing, including increase in cost of ownership due to mandatory long-term insurance, tighter safety norms, non-availability of retail finance and moderate economic activity because of the just-finished elections.
Segment-wise, commercial vehicle (CV) numbers fell short of the crease for all the automakers. Operating environment continues to be tough for a myriad reasons. Liquidity crunch, the lagged impact of new axle load norms and slowdown in economic activity all have affected demand. Tractor segment is also losing steam, thanks to last year’s higher base and subdued farm sentiment.
Ditto for three-wheeler (3W) sales, which are feeling the pinch from a very high base last year. Two-wheeler volumes are no better, hit by a confluence of adverse factors.
What could act as a catalyst for the industry is lowering of interest rates by the RBI in its upcoming policy review on June 6. A rate cut would help improve economic activity, boosting auto demand.
Commercial vehicles – No respite The economic downturn and stagnant industrial output coupled with the liquidity, financing and regulatory issues have dampened customer demand for CVs. The companies expect the demand to recover, post-election.
Company-wise, Tata Motors registered a decline of 24 percent year-on-year (YoY) in CV volume, hurt by 32.4 percent fall in medium and heavy commercial vehicles (M&HCVs). Eicher Volvo also saw a drop of 16.3 percent. M&M monthly volume came down by 2 percent, with significant softness in M&HCV segment playing out. Ashok Leyland was on the same boat, logging a decline of 4 percent. However, the slide was arrested by a significant jump of 30.5 percent in LCV segment.
Car segment stays under pressure Passenger vehicle segment continues to be under immense pressure, with no visible signs of recovery. Negative sentiment is mostly an upshot of high finance cost and regulatory headwinds. That explains the lower PV volume for May.
Volume for the market leader, Maruti, was down 23 percent for the month. The management expects the demand to be muted in H1 FY20 which could recover only in H2 FY20 and witness 4-5 percent growth for the whole financial year. Tata Motors’ passenger car space paints a similar picture, down 37 percent YoY. UV segment, however, continues to put up a strong show, racking up 12.7 percent growth for May. M&M had to suffer a decline of 0.5 percent in its monthly volume.
Rougher ride for two-wheelers (2W) Two-wheeler space has been the worst hit in the auto space, given a very weak consumer sentiment. Hero, the leader in the space, put up with a significant decline of 7.7 percent. Eicher, the leader in premium bike segment, too took a beating of 16.5 percent in its monthly sales. Bajaj Auto, on the other hand, bucked the trend, notching up 6.8 percent growth in volume on the back of aggressive pricing at the entry level segment, which helped it capture Hero’s market share. TVS sales fell 1 percent in May.
Three-wheeler (3W): Soft numbers The overall 3W market felt the heat in May. TVS posted a growth of 9 percent and M&M 4.9 percent. Bajaj Auto, the leader of the pack, registered a decline of 6.2 percent, chiefly because of high base last year.
Tractors: Blame it on Rabi sowing Tractor segment ran out of gas as Rabi sowing came in lower than expected and farm sentiment remained depressed. While Escorts numbers fell significantly by 22.1 percent, M&M’s fall in volumes stood at 15.8 percent. The management expects that the government focus on agri initiatives coupled with a near-normal monsoon forecast by IMD would stoke tractor demand in the near future.
Exports in troubled waters Exports are turning negative, with many countries facing multiple challenges. Several factors like drop in retail sales in Bangladesh and Nepal, high stock in the SAARC region and slump in the Middle-East have affected the overall industry volumes in these markets.
Barring Bajaj Auto, Escorts and TVS, exports for all auto majors contracted in May.
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