Rising personal mobility need has been a key driver of growth in the recent past
For PV sales even as the longer-term outlook remains healthy, analysts feel the inventory levels at the dealers remain high and may limit growth in May
NEW DELHI :
Passenger vehicle (PV) sales reported impressive growth during April, even as other segments were impacted by the spread of the pandemic. Rising personal mobility need has been a key driver of growth in the recent past.
“Based on numbers reported by OEMs (original equipment manufacturers), we estimate that PV wholesales in April were 16-18% above the 2019 level (down 10% month-on-month in line with usual seasonality)," said analysts at Jefferies India Ltd in their note. Given covid-led disruption seen during April 2020, comparisons of April 2021 volumes to April 2019 volumes, helps gauge the correct level of recovery.
Tractor sales continued good growth momentum seen over recent past. Mahindra & Mahindra Limited did see some softness, with a 4% decline in sales over April 2019. Escorts Ltd, nevertheless, reported good growth of 30%. The outlook for tractor sales also remains strong, with good rabi sowing and expected normal monsoon likely to keep demand firm. The near-term, nevertheless, is full of uncertainties. The spread of the pandemic in rural India is looked at with concern and may limit near-term growth feel analysts.
For PV sales even as the longer-term outlook remains healthy, analysts feel the inventory levels at the dealers remain high and may limit growth in May. “Our industry interactions suggest inventory levels have gone up by 110,000-140,000 units. Maruti Suzuki India Ltd (MSIL) has advanced its 9-day maintenance shutdown by a month to May, which we believe will impact wholesales," said analysts at Nomura Research in their note. Nevertheless, Nomura expects 30%/12% y-o-y growth in PV sales during FY22/23 respectively. This indicates that longer-term outlook may still be intact.
Optimism also prevails on the outlook for medium and heavy commercial vehicles (MHCV) even though the recovery is getting delayed with the spread of the pandemic. MHCV sales were down 43% in April 2021 compared with April 2019, but analysts at Nomura expect MHCV demand to recover as the pandemic is contained. They maintain the industry volume growth forecasts of 85%/25% for FY22/FY23. The same will be watched for.
Meanwhile, two-wheeler sales (2W) continue to remain weak. The start of the festive season and weddings did not have much impact on domestic demand in April. If the sales do not pick up in May, the demand recovery may be shifted to second-half, say analysts. Meanwhile, for companies such as Bajaj Auto Ltd, higher exports are providing support. Compared with April 2019, RE (Royal Enfield) volumes were down 15% while Hero's (Hero MotoCorp Ltd) volumes declined 35%.
The rising commodity prices remains a bigger challenge for OEMs. The weak demand in the near term may limit their ability to hike prices, the cost pressure continues to rise. Overall, May ’2021 poses challenges both on volume growth and margins, looking at the spread of pandemic and street will eagerly watch for signs of recovery.