Home / Auto News / Supply side issues ease; festive season sales key for automobile manufacturers

MUMBAI: After automobile manufacturers reported decent volume growth in September, investors will focus on festival season sales this month.

Original equipment manufacturers (OEMs) ramped up supplies in September to replenish inventories ahead of the festival season, which led to a good pick up in sales volumes. 

Passenger vehicle (PV) demand was strong and the volume growth in September indicated that chip supplies, too, are improving. Commercial vehicles (CVs) demand momentum also continues to improve, with pick-up in economic and infrastructure activities. 

Two-wheeler sales though have been lagging, and a recovery in rural demand along with festival season and wedding season sales remain key for driving growth. Tractor sales have been supported following good monsoon across the country.

In September, PV domestic wholesale dispatches reported impressive growth of 95% year-on-year (YoY), and 7% sequentially, suggesting improving supply to fulfil order backlogs, said analysts at Axis Securities. Growth in the CV segment growth was steady, rising 44% YoY, and 12% month-on-month, as per Axis Securities. 

Domestic wholesale volumes of two-wheelers, however, reported softer growth at 15% YoY, and 10% sequentially, (excluding Hero MotoCorp), hinting at lagging rural demand, said analysts.

The growth was mainly driven by the low base of the last year and inventory buildup for the festive season. Analysts at Motilal Oswal Financial Services Ltd. (MOFSL) said that volumes in 2QFY23 recovered across segments on a low base of 2QFY22, aided by some improvement in semiconductor supplies.

For OEMs, positives have also been from easing raw material prices, with the effect likely to be more visible from Q3.

Meanwhile, for the second quarter in a row, analysts at MOFSL expect Ebitda margin to improve by 310bp YoY and 130bp sequentially for MOFSL’s Auto OEM Universe during Q2, led by price hikes and operating leverage, despite the residual impact of an increase in raw material cost.

However, while commodity and crude prices are softening, rising interest rates and weak global demand environment remain key challenges for manufacturers.

“There are no major upgrades to our EPS estimates for FY23," said analysts at MOFSL. They prefer companies with a higher visibility in terms of a demand recovery and a strong competitive positioning, margin drivers, and balance sheet strength. The festive season is critical for two-wheelers and tractors .

During the first week of the festival season, the automotive industry witnessed a strong double-digit growth, said analysts at BNP Paribas India. Two-wheelers saw a good 26% YoY growth in weekly retail sales in the first week of the festive season, however, it declined 3% on a three-year CAGR basis, they added. 

The two-wheeler festival demand saw a double-digit decline in the first week of the festival season of both 2020 and 2021. When compared with the first week of 2019 festive season, moped and two-wheeler demand declined year-on-year while other segments saw a strong CAGR over the same period, they added.


Ujjval Jauhari

Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
Catch all the Auto News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less

Recommended For You

Trending Stocks

Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout