After remaining lukewarm for several months, the Indian automobile industry returned to ‘healthy’ growth in August 2023, pointed out analysts, boosted by inventory build-up ahead of the key festive season.
“The overall wholesale volume performance was healthy in August 2023,” JM Financial said, adding that two-wheelers and passenger vehicles witnessed an increase in its demand growth.
Numbers showed that demand for domestic passenger vehicles and two-wheelers witnessed mid-single-digit growth, although wholesales for commercial vehicles remained weak, particularly those of light commercial vehicles.
Tractor demand too was impacted due to a deficient monsoon, while exports also failed to show much recovery.
Two-wheeler revival
Two-wheelers have been seeing a slow revival in its demand especially from the rural areas ahead of the festive season. The two-wheeler industry volumes — which have been flucutating in recent months due to poor demand from rural areas — increased by nearly 6% in August on a year-on-year basis.
The steady demand for two wheelers in August was attributed to the sustained outperformance of the premium segment and gradual recovery in EV volumes.
However, the sales of electric two-wheelers are expected to take a hit with the recent subsidy cut in FAME-II, analysts pointed out.
The government revised the FAME-II subsidy amount to Rs 10,000 per kWh as against the earlier amount of Rs 15,000 per kWh. It also capped incentives on e-2Ws at 15% of the ex-factory price of vehicles from 40% earlier. These changes increased e-2W prices by up to Rs 30,000 a unit.
The wholesale demand for two wheelers is also expected to show recovery towards the onset of the festive season, JM Financial added.
In terms of companies, TVS Motor reported a 4% year-on-year increase in volumes led by 17% year-on-year growth in scooters.
Royal Enfield volumes increased by 11% on a year-on-year basis driven by 11% year-on-year increase in domestic volumes and 13% increase in export volumes.
Bajaj Auto reported 15% year-on-year decline in overall volumes due to the high base of August 2022, while Hero MotoCorp Limited’s volumes increased by 6% year-on-year in August 2023.
Cars & SUVs on rise
The domestic passenger vehicles volumes grew by 5% on a year-on-year basis in August 2023.
“In the passenger vehicles segment, wholesales in near-term are likely to be a function of further normalisation of supplies and response to recent model launches,” said JM Financial.
Currently, it said, wholesale volumes of passenger vehicles are higher than retail volumes as manufacturers continue to fill up channel inventory ahead of the festive season.
“As per our estimates, domestic passenger vehicles industry wholesale volumes increased by a high-single digit/low-double digit and retail volume grew by 5% year-on-year in August,” said analysts from Kotak.
In terms of companies, Maruti Suzuki India Limited posted an impressive volume growth with an increase by 15% year-on-year in August 2023. The company’s SUV volumes increased over 100% on a year-on-year basis for the month.
“As per our estimates, Maruti Suzuki’s market share stood at nearly 43% (wholesales) in August 2023,” said Kotak.
Hyundai registered a 9% increase in volume growth and M&M’s volumes increased by 27% on a year-on-year basis in August 2023.
Muted demand for commercial vehicle
However, this was not the case with the retail sales of commercial vehicles (CV) as they continued to post a weak growth which was driven by muted demand trends in the light commercial vehicle segments like vans, pick-up trucks, autos etc.
In the CV segment, Medium & Heavy Commercial Vehicle segment (MHCV) wholesale volume posted healthy year-on-year growth during August 2023 while Small Commercial Vehicle (SCV) demand remained muted.
On a positive note, the overall sales momentum is expected to grow by mid-to-high single digit during FY24, noted analysts from JM Financial.
JM Financial said it expects CV demand to be stable going forward due to two reasons: the improving finances of fleet operators due to freight hikes and utilization and increasing orders for buses from State Transportation Undertakings.
The high interest rates remain a key deterrent, however, steady steady freight rates are supporting commercial vehicle operators, said JM Financial adding:
“We expect CV volumes to be supported by demand from infra & construction sectors.”
Interestingly, Tata Motors which reported a 4% decline in volume growth performed well in the commercial vehicles segment.
The company’s commercial vehicle volumes improved by 2% year-on-year led by 14% year-on-year increase in Medium & Heavy Commercial Vehicle segment, 30% year-on-year improvement in buses segment and 5% year-on-year improvement in I&LCV, partly offset by 4% year-on-year decline in Small Commercial Vehicle cargo segment.
Meanwhile, the wholesale volume broadly grew in line with the retail trends in August.
Monsoon impacts tractor sales
The impact of a deficient monsoon in August was seen in the sales of tractors as the domestic tractor industry volumes declined by single-digit on a year-on-year basis.
“The key headwind for tractor sales remains weak monsoon trends whereas adequate reservoir levels and better terms of trade will partly offset its impact, in our view,” noted Kotak.
Mahindra & Mahindra total tractor volumes remained flat year-on-year, whereas Escorts Kubota total tractor volumes declined by 9% year-on-year in August 2023.
Original Equipment Manufacturer (OEMs) continued to build inventory ahead of the festive season, especially in the passenger vehicles segment. OEMs remain confident of gradual pick-up in EV momentum and are focusing on production / distribution ramp-up.
The exports segment recovery growth also remained below expectations especially in the two wheeler segment. The export trends remained sluggish and grew marginally on a year-on-year basis.