Home / Markets / Mark To Market /  Uneven growth in passenger vehicles, two-wheelers

The Indian automobile industry is going through a K-shaped recovery, evident from the wholesale volume numbers for September. Sequentially, pre-festive channel filling boosted volumes in the passenger vehicle (PV) and two-wheeler (2W) segments. However, within the segments, growth was varied across categories.

In PVs, the pricier utility vehicles are stealing the show. In September, Maruti Suzuki India Ltd’s domestic volumes in the mini, compact, and mid-size segment grew by 8.3% sequentially, while utility vehicle volumes rose by nearly 21%. A similar trend was seen in July and August.

Festive boost
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Festive boost

Compared to pre-covid (September 2019) levels, the last month’s volumes of PV makers such as Maruti, Tata Motors Ltd, and Mahindra & Mahindra Ltd (M&M) have risen substantially.

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In 2Ws, premium vehicles continue to gather momentum. Barring Bajaj Auto Ltd, the other listed 2W companies clocked sequential growth. Here, the 17% sequential rise in Eicher Motors Ltd’s Royal Enfield domestic volumes was higher than the 12.6% growth in the 2W volumes of Hero MotoCorp Ltd.

Royal Enfield’s September volumes are up by nearly 34% against pre-covid levels. Hero Moto primarily operates in the entry level 2W segment and its September volumes are lower versus pre-covid levels. On the other hand, TVS and Bajaj Auto, which have premium vehicles in their portfolio, clocked nearly 17% and 26% respective growth when compared to September 2019.

Overall, PVs are seeing increased traction versus 2Ws, reflecting the K-shaped recovery. The demand environment for 2Ws continues to remain muted, led by weak rural sentiment. “The price increases in the 2W segment have surpassed income growth, which weighs on affordability, in our view," said Kumar Rakesh, an automobile and technology analyst at BNP Paribas Securities India.

However, tractors have not seen that kind of price increase and the segment’s September volumes have surprised positively. M&M’s and Escorts Kubota Ltd’s total tractor volumes rose by 126.4% and 100.2%, sequentially. This compares to Motilal Oswal Financial Services’ estimate of nearly 88% and 50% growth respectively.

“Demand in the tractor segment was strong in September. The advent of the new harvesting season is likely driving the tractor demand and the volume growth will continue, in our view," pointed out Rakesh.

All said, retail volumes are a true testament to demand. It remains to be seen if the festive season adds to retail volume growth, particularly for 2W companies with higher rural exposure. According to Vahan registration, Hero Moto has lost its top spot in the number of 2Ws sold in India in September for the first time to Honda Motorcycle and Scooter India. This is because of Hero’s larger presence in states with high rural exposure such as Uttar Pradesh and Bihar. Also, the automaker’s wide presence in motorcycles is not helping either as these consumers are more price sensitive.

The festive season augurs well for PV and 2W retail volumes, but the demand environment post that would reveal the true picture.

Meaningful growth in volumes would be key triggers for the aforementioned stocks, which are down by 6%-26% from their respective 52-week highs. Further, better-than-expected margin performance in Q2 would boost investor sentiments. “We prefer 4-wheelers over 2Ws, on the back of strong demand and offer a stable competitive environment," said analysts from Motilal Oswal in a report dated 2 October.

Elsewhere in Mint

In Opinion, Ajit Ranade argues a high upswing in business or investment cycle is unlikely in the near term. Anjani Trivedi writes why venture capitalists looking to put their money to work should keep an eye on India. Pradeep S. Mehta tells why courts should appoint economists and finance experts. Long Story draws chip-making lessons for India from East Asia.


Vineetha Sampath

Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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