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The auto industry faces many hurdles before it can score a full recovery. (Mint)
The auto industry faces many hurdles before it can score a full recovery. (Mint)

Auto sector may continue to come under covid pressure amid curbs

  • Maruti reported its first ever quarterly loss in the past 17 years in the three months ended 30 June
  • Rising cases of coronavirus infections and sporadic local lockdowns mean the auto industry faces many hurdles before it can score a full recovery

Automobile sales in India will likely stay in the slow lane for some time despite a rise in sales in July, given the uncertainties over demand, according to industry experts.

Companies and analysts expect an uptick in wholesales, or factory dispatches, over the next few months to replenish dealer stocks ahead of the upcoming festival season. Also, rural markets and segments such as motorcycles are expected to fare better than the urban markets and cars.

However, rising cases of coronavirus infections and sporadic local lockdowns mean the auto industry faces many hurdles before it can score a full recovery.

On Saturday, car and two-wheeler makers reported sequential as well as year-on-year (y-o-y) rise in sales in July as the easing of lockdown curbs began to take effect.

Maruti Suzuki India Ltd, the country’s top carmaker, posted a 1.8% year-on-year (y-o-y) rise in local sales to 100,000 units in July. This was driven by a 49% jump in sales of entry-level cars such as Alto and S-Presso, and 26% in utility vehicles such as Vitara Brezza and Ertiga.

However, like some information technology companies, the market uncertainty was also reflected in Maruti Suzuki as it declined to give sales volume forecast when it issued earnings on 29 July.

Maruti reported its first ever quarterly loss in the past 17 years in the three months ended 30 June.

Hyundai Motor India Ltd, the second-largest carmaker, posted local sales of 38,200 units, a 2% drop from the year earlier. On a sequential basis, though, both Maruti and Hyundai reported robust growth in sales at 51,274 and 21,320 vehicles, respectively.

Senior executives at top automakers said they are not fully convinced whether the rebound seen in July will sustain beyond the harvest season, which ends in October, coinciding with the festive season, during which vehicle sales across categories typically increase.

Shashank Srivastava, executive director, sales and marketing, Maruti Suzuki, said retail sales and bookings have recovered to 80%-90% of the pre-pandemic level. “However, steady growth depends on an economic recovery, consumer sentiment and how the situation related to covid -19 evolves. We have seen a decline in replacement demand as customers are holding on to their vehicles for longer periods, but first-time customers have increased," Srivastava told analysts after reporting the quarterly earnings.

In some categories, recovery is expected to be faster than the rest. Hero MotoCorp Ltd reported a 3.9 % y-o-y drop in domestic sales to 514,509 units in July.

On a sequential basis, though, sales rose from 450,000 units in June and 120,000 units in May, thanks to demand for its entry-level motorcycles, especially in the rural markets.

Honda Motorcycle and Scooter India recorded a 53% sequential growth in sales in July amid a pickup in demand for its scooters and executive segment motorcycles.

Automakers remain wary of several challenges such as timely procurement of components, sporadic lockdowns, closures of dealerships and availability of manpower at vendors to scale up production.

Puneet Gupta, associate director at IHS Markit, said the strong recovery in July notwithstanding, it is still too early to conclude if demand has bounced back completely.

“Car wholesales are expected to be robust over the next 3-4 months as there is good pent-up demand in the system. Also, carmakers will produce full throttle to build inventory at their dealership network, which is at its lowest level currently. However, there is no doubt demand will come down post-festive season," Gupta said. He added that once the loan moratorium period ends, several small- and medium-sized firms will be required to start repaying interest to banks, which may weaken their balance sheets leading to more defaults and job losses.

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