Mixed demand trends for autos in November as festive boost wears off but signs of rural recovery visible

• Indian auto companies are looking at mixed demand momentum after making merry post the festive season boost in October.
• The festive boost last month lifted the number of registrations across the passenger vehicles (PV), commercial vehicles (CV) and tractors segments in the range of 35-66% when compared to October 2019.
• However, PV sales are off to a slow start in the marriage season in November, despite an increase in discounts.
• Two-wheeler registrations are also still below pre-Covid levels, but the urban markets are driving the demand for scooter and premium motorcycles, say analysts.

Indian auto companies are looking at mixed demand momentum after making merry post the festive season boost in October. Retail data suggests that trends remain mixed across segments like two-wheelers, passenger vehicles, and commercial vehicles.

The festive boost in October lifted the number of registrations across the passenger vehicles (PV), commercial vehicles (CV) and tractors segments in the range of 35-66% when compared to October 2019, according to a report by Jefferies.

While the marriage season has set in now, a report by Yes Securities states that passenger vehicles are off to a slow start in November despite an increase in discounts compared to October.

Commercial vehicles are also seeing an increase in inventories across companies, the report stated, adding “Large fleet operators have staggered their delivery schedules while retail customers' contribution is yet to come in full swing.”

Two-wheeler registrations still below pre-Covid levels

Two-wheeler registrations are still below pre-Covid levels, with Hero MotoCorp and TVS Motors expected to report a sequential decline in sales in the range of 14.2-17.9%, according to Yes Securities.

In October, an Elara Securities report stated that Hero MotoCorp reported a 17% decline in its overall sales, while Bajaj Auto reported a 10% decline. The only gainer was TVS Motors, which reported a 1.5% increase year-on-year.

Now, according to Yes Securities, overall two-wheeler retail sales could decline between 5-8% in November when compared to October. On a year-on-year basis, though, it notes that there could be flat to high-single digit growth.

“Compared to the past few months, 2W demand saw some bounce back during this festive season. However, the registrations were far from reaching the pre-pandemic levels in 2019,” said Nikunj Sanghi, former president, Federation of Automobile Dealers Associations of India (FADA).

Marriage season off to a slow start, SUVs perform relatively better

The Yes Securities report observes that the trend of entry-level cars struggling has continued through November. Additionally, hatchbacks are also seeing a slow uptake from customers.

Sports utility vehicles (SUV), on the other hand, are seeing relatively better demand. However, companies are still facing supply chain issues, which is hampering their overall sales.

“PVs are still facing supply challenges in premium variants impacting overall model mix at retail level,” the report stated.

Higher discounts on entry-level cars as inventory builds up

Car makers are now offering higher discounts on entry-level cars as they attempt to reduce the inventory build-up, which has now increased to over 15 days, according to the Yes Securities report.

For instance, Maruti Suzuki has increased discounts in the range of ₹5,000-10,000, while Tata Motors is offering up to ₹10,000-15,000 more discounts in November, when compared to October.

Overall, Maruti Suzuki, Tata Motors, and Mahindra & Mahindra are offering discounts and benefits in the range of ₹28,000-65,000, depending on the car being bought.

Rural recovery signs visible

Rural India, a critical market especially for two-wheeler and tractor makers, is showing signs of a recovery, according to analysts at Motilal Oswal.

“Rural recovery resulted in a healthy 26% and 30% YoY growth in 2W and tractor retails during festive season, respectively, even as secondary 2W dealers (mainly non-urban) saw strong demand revival,” the research firm said.

The firm noted that despite the demand revival in the festive season, “full normalcy is yet to be achieved.” It added that urban markets continue to see better demand than rural markets, which reflects in the scooter and premium motorcycle segments’ growth.

For instance, Royal Enfield’s Hunter 350, a premium motorcycle, has seen its waiting period increase from 1 month to 2.5-3 months, with dealer confidence seeing a sharp increase.

“Channel partners we spoke to are indicating high confidence post launch of Hunter with their volumes are ~15% lower than FY18 levels but are back to FY19 levels,” the Yes Securities report stated.

Tighter cash flows and slower uptake leading to inventory build-up of trucks

Commercial vehicles like trucks continue to witness an inventory build-up, with the key market of the northern belt witnessing under-utilisation, according to Yes Securities.

Making matters worse and adding to the uncertainty is the ban on construction activities in the Delhi-NCR region, and schools being shut due to pollution. This has impacted the demand for both buses and trucks, according to analysts.

According to Yes Securities, tighter cash flows due to an increase in working capital requirements, customers have delayed delivery plans of booked vehicles, adding to the build-up of inventories.

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