Auto sales kick off festival in November; eyes on the fix

For now, the scenario is somewhat gloomy. In November, auto sales numbers disappointed a bit, amid high expectations of an improvement in sales in the festive season. Overall, the sales figures indicate a mixed demand trend in auto sales with two-wheeler, passenger vehicle and tractor segments remaining weak. The only bright spot among this was a decent recovery in commercial vehicle sales. Analysts note that rural sales were hit in November due to adverse factors such as delay in harvesting of kharif crops, maintaining rural cash flows and retail sales. In addition, chip shortages continue to limit the rebound in sales recovery for the passenger vehicles (PV) and other segments.

“In November ’21, domestic CV volumes continued to pick up, but other segments were weak mainly due to supply issues, sluggish rural sentiments and last year’s higher base,” said analysts at Emkay Global Financial Services.

CV sales are benefiting from increased fleet utilization and better freight rates for truck drivers. Apart from this, it is good to relax the restrictions related to the lockdown after the economic recovery. This reflects the year-on-year overall CV sales growth reported by Tata Motors Limited. Domestic LCV (light commercial vehicle) sales for Tata Motors grew 27% year-on-year, while M&HCV (medium and heavy CV) sales grew 10%. However, Ashok Leyland Ltd., the other leading CV maker, disappointed marginally with a 2% year-on-year decline in sales. “Going forward, we expect CV sales to improve during Q4FY22. Analysts at JM Financial Institutional Securities Ltd said the bus segment remained on its recovery course at around 50% of normal levels in November 2021.

To be sure, the demand for PV also remains strong due to the growing need for personal mobility. Still, PV sales volumes have been suppressed due to chip shortages. Apart from Tata Motors, which reported a 38% year-on-year growth in PV sales, aided by a lower base and new model launches, most others saw a decline in sales. For example, Maruti Suzuki saw a 19% year-on-year (flat compared to the previous month) decline in domestic PV sales.

However, there is optimism that gradually easing chip shortages could improve PV sales. Improvement in chip supply is also expected to improve sales of premium motorcycles. Two-wheeler sales, especially at the entry level, remain extremely weak.

On the other hand, exports continue to be the major driver for auto OEMs (Original Equipment Manufacturers). TVS Motor Co. Ltd’s exports registered a growth of 30% year-on-year, driven largely by a 29% decline in domestic two-wheeler sales. In fact, the cushion from exports helped ease the year-on-year declines of TVS and Bajaj Auto to 15% and 10%, respectively, which is better than the 41% volume drop reported by Hero MotoCorp. In such a situation, investors are waiting for recovery in the sale of two wheelers. Higher fuel prices and higher cost of ownership coupled with price hikes are a cause of concern on the demand front.

Meanwhile, the struggle for growth in tractor sales on a higher basis had intensified due to weakness in rural incomes. “We estimate that tractor industry wholesale sales fell around 21% year-on-year in November (August-October were down 9% year-on-year). Tractor registrations in November were also down 10% year-on-year and 5% down from 2019,” analysts at Jefferies India said in a report on December 1.

Mahindra & Mahindra Ltd (M&M) agriculture sales declined 15% in November, while Escorts tractor sales declined 30% year-on-year. Escorts’ home sales declined nearly 33% year-over-year.

Overall, November sales may have been mixed, but analysts remain positive on the auto sector. Analysts at Emkay Global said, “Based on expectations of a cyclical uptick over the next three years, we continue to maintain a positive outlook on the auto sector.”