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Uptrend in auto sales continues, mirroring economic growth

Uptrend in auto sales continues, mirroring economic growth

Mumbai: In a sign that the better-than-expected growth in gross domestic product in fiscal 2010 is continuing into the current fiscal, most domestic auto makers on Tuesday reported sales growth in double digits in May.

The increase in Asia’s third largest auto market marks the fifth straight month of growth in sales of cars and motorcycles, backed largely by newer models and a benign lending regime.

Auto makers expect the good run to continue in the coming months as predictions of a normal monsoon and rapid economic growth hold out the promise of higher sales.

In the fiscal ended 31 March, the Indian economy grew 7.4%, with industrial output growing 9.3%, beating estimates of 8.2%.

Also See Demand Drive (Graphic)

“With strong headwinds like hardening of interest rates not in sight and other enabling factors showing a continuing trend, the sales drive is likely to continue in the first half of the current year," said Surjit Arora, analyst at domestic brokerage Prabhudas Lilladher Pvt. Ltd.

Leading the way were car and bike market leaders Maruti Suzuki India Ltd and Hero Honda Motors Ltd, posting record local sales.

With new models of the WagonR and the Eeco, domestic sales at Maruti Suzuki grew 27% to 90,041 units in May.

“Buoyancy in demand from the top 10 cities has also helped," said Maruti Suzuki’s chief executive officer (sales and marketing) Mayank Pareek, adding that these cities contributed 25% to sales, up from 5-8% seven months ago.

Arora said the wedding season, which typically sees higher sales, also pushed growth, adding that Maruti and Hero Honda have been the biggest beneficiaries.

Pareek estimated wedding sales to have contributed up to 2% to total sales.

The auto index on the Bombay Stock Exchange shed 103.70 points to close 1.35% lower, but fared better than the benchmark Sensex, which fell 372.60 points, or 2.20%. Maruti Suzuki was the only auto firm to buck the trend, rising 1.80% to close at Rs1,259.20 per share, while shares of all other auto makers fell.

Domestic sales at Hyundai Motor India Ltd, the second largest car maker in the country, also increased 13% to 27,151 units.

“Although the market continues to grow, we were constrained by our planned annual maintenance shutdown this month, which restricted our numbers as we had to divert our export production to meet the demand for the domestic market," the company said in a statement.

All sales numbers reflect units shipped to dealers, rather than retail purchases.

Other global car makers also performed well in the Indian market. General Motors India Pvt. Ltd saw May sales rise 61% to 8,225 units, while the Indian unit of Toyota Motor Corp. said sales rose 54% to 6,050 units.

On the two-wheeler front, Hero Honda shipped a record 435,000 units to dealers, up 14% from the same period a year ago.

Hero Honda’s senior vice-president of sales and marketing Anil Dua said growth in premium motorcycles and at least 60% growth in sales of Pleasure scooters boosted sales.

New models helped domestic and export sales at Bajaj Auto Ltd, the country’s second largest motorcycle maker. Sales rose 63% to 269,488 units.

Sales at Tata Motors Ltd, the country’s largest auto maker by revenue, jumped 38% to 52,801 units. Sales of passenger vehicles, including Fiat cars that the company sells, grew 42%, while sales of commercial vehicles were up 37%.

At Mahindra and Mahindra Ltd, which makes tractors and utility vehicles, sales rose 66% to 27,036 units.

Some experts anticipate a marginal slowdown in the months ahead. Vaishali Jajoo, a sector analyst at Angel Broking Pvt. Ltd, expects a moderation in growth in the September quarter.

“While volume increase will continue, the growth will taper off as demand slows down with the onset of monsoons and the base effect kicks in," she said, referring to the fact that the sector didn’t do too badly in the corresponding months last year.

Moreover, price hikes that auto makers are considering to blunt higher input costs, particularly steel, will also have an impact, Jajoo added.

Higher price tags have already started making an appearance. On Tuesday, Hero Honda announced an increase of Rs500 on its entire range, barring the entry-level Splendor. Dua said the firm has only passed on part of incremental costs on expectations that raw material prices will decline soon.

Reuters contributed to this story.

Graphic by Yogesh Kumar/Mint


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