BackJune car sales rise, hint at recovery
Excise duty cuts begin to show impact; manufacturing PMI improves to strongest level since February
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Mumbai: Sales of most car makers rose for the second month in a row in June, as customers, particularly first-time buyers, returned to showrooms as excise duty cuts announced in February started to have an impact.
The increase in sales reported by most companies adds to other indicators of a recovery, albeit a slow one, in the economy. The HSBC manufacturing Purchasing Managers Index (PMI), released on Tuesday, improved marginally in June to its strongest level since February, while a business confidence index released by the Confederation of Indian Industry (CII) this week showed a notable improvement in sentiment in the April-June quarter.
To be sure, a quicker recovery may remain elusive as consumers weigh the impact of higher oil prices and persistent inflation on household budgets.
India’s economy expanded 4.7% in the year that ended in 31 March 2014, denting demand in Asia’s third largest market.
Car sales, in particular, declined for nine consecutive months, according to data from the Society of Indian Automobile Manufacturers.
The trend started to reverse in May when car sales rose a marginal 3.09%.
The momentum seems to have continued in June.
Market leader Maruti Suzuki India Ltd sold 100,964 units in the domestic market during the month, an increase of 31% over the same period last year. In the month of May, Maruti Suzuki reported a 16% growth in sales.
According to Surjit Singh Arora, analyst at Prabhudas Lilladher India Pvt. Ltd, Maruti’s sales exceeded the brokerage’s expectations. Arora attributed the rise in sales to the return of first-time buyers and the impact of the excise duty reduction—from 12% to 8%.
“Lower excise duty is unlikely to lead to a genuine demand. People will invest in buying vehicles only with better signs of economic recovery," said Subrata Ray, analyst at ICRA Research, who added that an increase in sales of small cars would imply the return of first-time car buyers to the market. Ray doesn’t expect sales to recover completely before the end of 2014-15.
Utility vehicle market leader, Mahindra and Mahindra Ltd saw sales decline 3% to 16,780 units, even though the company said it saw an increase in enquiries from potential buyers.
“Following the extension of excise duty cuts, we are seeing an increase in footfalls and enquiries and we hope that these are converted into sales," said Pravin Shah, chief executive, automotive division, at the firm, at a press meet on Tuesday, adding that with the new government in place and launch of new models and variants the company expects a better performance in the coming quarters. According to Shah, a deficient monsoon is unlikely to have an impact on demand in the second quarter.
Indeed, apart from the excise duty cut, and a feeling that things could get better now with a new government in charge, new models would appear to be the key to growth.
Hyundai Motor India Ltd reported a 9.5% increase in sales to 33,514 units with its new models including the Xcent compact sedan, Grand and Santa Fe sports utility vehicle, leading the pickup in sales.
Helped by the new Corolla Altis and Etios Cross models, domestic sales at the local arm of Toyota Motor Corp. rose 9% to 12,010 units. And Honda Cars India sold a total of 16,316 units, a jump of 75%, on the back of new models like the new City and the Amaze compact sedan.
Tata Motors Ltd, which saw passenger vehicle sales slip 33% to 7,911 units, is hoping for a turnaround with the imminent launch of the Zest and Bolt, the sedan and hatchback models it plans to launch in the next one month.
According to Zyfin Research, a macro analytics firm, the vehicle purchase sentiment Index has remained on recovery path and registered improvement for second consecutive month.
The index has moved up from 42 in April to 47 in May, and rose further to 52 in June. The firm considers anything above 50 as optimistic. The analysis is based on a sample size of 4000 Indian consumers across 18 cities.
The June sales numbers spurred buying in shares of auto firms as well.
BSE’s Auto Index closed at 15742.92 points, up 3.24% on Tuesday, while the exchange’s benchmark Sensex closed at 25,516.35 points, up 0.40%.
Swaraj Singh Dhanjal contributed to this story.
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