BackExports boost auto sales amid tepid performance at home
Sluggish domestic market sales have made analysts cautious on forecasts for the coming months
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Automobile sales may have portrayed a mixed trend for the month of November. But what stands out is that exports across segments revved up to compensate for the lull in domestic market sales after two strong festive months.
According to Society for Indian Auto Manufacturers (Siam) data, the strongest year-on-year (y-o-y) growth rate was 117% in utility vehicle (UV) sales. In contrast, domestic sales contracted by 6.8%, falling even lower when compared with October. Cars fared better, registering a growth rate of 9.5% in the domestic market though in this segment, too, exports posted twice the growth rate. Of course, export volumes are much lower. The increase in sales volume in the local market was led by Maruti Suzuki India Ltd, mainly through sales of new models.
Sluggish domestic market sales have, however, made analysts cautious on forecasts for the coming months. A delayed monsoon and the late arrival of the kharif crop has translated into a moderation of consumer demand. Commenting on the October Index of Industrial Production (IIP), Crisil Research explains, “Though inflation fell rapidly, a dent in farm incomes due to poor monsoon season is believed to have kept consumption demand low." Industrial production fell sharply on weak investment activity and low consumption.
A 3% drop in motorcycle sales, a sizable portion of which accrues from rural demand, mirrors the weakness in rural markets. Again, it was the 19% growth in exports that offset this drop. Tractor sales, too, plunged by roughly 30% for leading manufacturers, sharper than expectations on the street.
Among two-wheelers, scooter sales in the domestic market coming from Honda and TVS Motor Co. Ltd, saved the day as the shift in product mix towards more urban markets and women helped increase sales.
Medium and heavy commercial vehicles were in the spotlight, registering robust growth. Perhaps the low base and some activity around mining and infrastructure pushed up sales of multi-axle vehicles. But here again unless domestic consumption both in rural and semi-urban areas do well, light commercial vehicles (LCVs) will not see high growth rates.
Eventually, from an investor perspective, sales volume is the key determinant of profit margin as it gives operating leverage.
Even in the September quarter, most of the expansion in operating margin in the auto index came from companies with strong exports such as JaguarLand Rover, in the case of Tata Motors Ltd. Perhaps, tepid domestic sales is the reason for the BSE auto index shedding gains made in earlier months, when the mood was more buoyant.
The writer does not own stocks of the companies mentioned here.
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