Home >Markets >Mark To Market >Festival season sales trim auto inventory but fail to excite investors

The festive season of Navaratri and Diwali arrested the 12-month decline in auto sales but the Nifty auto index, that rallied nearly 12% in October, has shed 2% since Friday when most auto firms announced their sales numbers. Looks like the near-term challenges that the industry faces continue to haunt investors.

Indeed, good retail sales have boosted sentiment of original equipment manufacturers (OEMs), consumers, and investors. According to Motilal Oswal Financial Services Ltd, “While retails set new records, the OEMs’ focus on inventory correction resulted in a year-on-year (yoy) decline in two-wheelers, passenger vehicles and tractor wholesales."

Upbeat retail sales have trimmed inventory levels, which can help firms reduce discounts and prepare for replenishing dealer channels with BS-VI vehicles.

Note that within the auto pack, passenger vehicles and two-wheelers fared better when compared to commercial vehicles where sales continued to contract.

October passenger vehicle sales numbers of Maruti Suzuki India Ltd and Hyundai Motors India Ltd have raised hope of a recovery. Though domestic passenger vehicle sales declined 6% year-on-year in October, it was much lower than the 30% decline reported for the September quarter.

Even in the case of two-wheelers, the 15% yoy decline in October sales though worrisome, was better than the 20% decline for the September quarter. Analysts said their dealer checks reiterated management commentary that inventory levels are down to 30 days from the earlier 55-60 days, which was the highest for the sector.

A few such as Royal Enfield and Bajaj Auto Ltd reported better-than-expected sales, though TVS Motor Company and Hero Motocorp Ltd’s steep double digit decline hint at more pain in the months to come.

Meanwhile, the situation continues to be grim for commercial vehicles. Medium and heavy commercial vehicle sales sagged 56% yoy indicating that the pain from subdued movement of goods and increased axle-load norms continues.

The Street’s reaction to auto sales numbers shows that investors remain a worried lot. Typically, sales tend to decline after the festival season, which implies that numbers may dip again in November and December, making it another quarter of pain.

Of course, much depends on the BS-IV inventory lying with companies and dealers. Most would face the challenge of clearing BS-IV stock to make way for BS-VI vehicles for next year. In addition, there is uncertainty on the pricing of BS-VI vehicles and consumer appetite for the same.

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