Nov sales show auto market may contract this fiscal

Nov sales show auto market may contract this fiscal

New Delhi / Mumbai: Sales of cars, motorbikes and three-wheelers declined in November, continuing a trend seen in four of the last five months, and raising for the first time the prospect that business in the Indian automotive sector may not just miss the 8% growth target set for this fiscal year, but actually contract from fiscal 2008.

Seven of the 36 auto makers reported sales figures on Monday—Hyundai Motor India Ltd is the only large firm set to release November data on Tuesday—but the downward trend was clear, if not stark.

Maruti Suzuki India Ltd, the country’s largest car maker, reported a 27% drop in domestic sales. Exports continued to grow at a healthy 12%, but this hardly helped as total sales fell 24%.

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The firm’s domestic sales in the first eight months of this fiscal year have fallen 1.6% against the corresponding period of 2007-08, the first time this year that fiscal 2009’s sales are trailing fiscal 2008’s. Sales are not likely to improve very much in the coming months, a Maruti spokesperson said.

November, to be sure, was always expected to be a tough month for auto makers since the festival of Diwali—considered by some an auspicious time to purchase cars, trucks and two-wheelers—fell in October this year.

Finance companies continued to keep a tight leash on vehicle loans and auto makers complained that the terror attacks in Mumbai last week further depressed the sentiment.

“While we did expect a slowdown in sales, one had not expected such a sharp fall," said Piyush Parag, an analyst with Religare Capital Markets Ltd. He attributed the decline to two reasons: an inventory build-up at dealers after tardy sales in October and the benefits of the interest rate cuts announced in recent weeks not percolating down to buyers.

While estimates vary, car makers say the Mumbai market alone accounts for about 7,000 cars sold every month.

“Lot of sales for auto companies happens in the last four days of the month. We saw (a) similar sales trend after the July 26th (of 2005) flood in Mumbai," said Mahantesh Sabarad, an analyst with Centrum Broking Pvt. Ltd. “With the terror attack, the banking and financial system took a hit and high value cheques got held up owing to thin attendance in banks and other financial institutions."

Sales at Tata Motors Ltd fell 30% to 32,696 units; commercial vehicle sales were lower by 40% and passenger car sales slid 12%. The Sumo and Safari fared particularly poorly, selling over 52% less than last November. It is suspending production at its commercial vehicle unit in Pune on 5, 6 and 7 December, said spokesperson Debasis Ray.

Mahindra and Mahindra Ltd (M&M) said it sold 37.7% less cars and three-wheelers in November. Sales of its Logan sedan plunged at least 41.4%. The firm hinted it may cut down output. “Slowing down of production is certainly happening," M&M’s president (automotive sector) Pawan Goenka said. Other firms such as Tata Motors andAshok Leyland Ltd have shut down factories for a few days in November.

Honda Siel India Ltd, however, stood out. Powered by its new City model, its November sales increased 15%.

Hero Honda Motors Ltd, India’s largest two-wheeler maker, too, managed to buck the downward trend, but only just. It sold 1,399 more vehicles in November (total: 289,426) against the same month last year. The firm’s sales in the first eight months of this fiscal year are up 13% year-on-year.

Other two-wheeler makers had a rough time. Bajaj Auto Ltd and TVS Motor Co. Ltd both reported a fall in sales. Bajaj sold 32% less two- and three-wheelers in November; TVS reported sales fell 12.7% in the month. Exports at both companies continued to grow.

In a statement, Bajaj attributed the slowing sales to a slowdown in demand and also to a correction in dealer inventories, which is expected to continue in December.

Shares of most auto firms fell on Monday, dragging the 14-firm auto index on the Bombay Stock Exchange (BSE) 4.64%. The index has shed 60.79% this year. Hero Honda shares shed 5.69% to close at Rs755.20 each. Maruti was down 9.40% to Rs485.50, M&M declined 3.37% to Rs272.15 and shares of Tata Motors fell 2.64% to Rs132.75. BSE’s Sensex fell 2.8% to 8,839.87. Since 1 January, shares of Maruti, M&M and Tata Motors have lost 50.96%, 68.38% and 81.53%, respectively, in value, while Hero Honda has gained 8.25%.

Graphics by Ahmed Raza Khan / Mint