Low Inventory Levels, Strong Order Book Should Fuel Growth in Auto Sales
Passenger vehicle manufacturers hope to trigger a quick turnaround in wholesale sales from July to help replenish low dealer inventories even as orders pile up for popular models, in turn being fueled by consumers switching from public transport to personal transport.
In addition, the relatively limited impact of the second wave of the coronavirus pandemic in rural India and a healthy summer harvest is expected to boost tractor sales.
Most automakers are expected to start manufacturing in three shifts this month, with high production targets at Maruti Suzuki India Ltd, Hyundai Motor India Ltd, and Tata Motors Ltd. In the fourth quarter of fiscal 21, most of these companies reported a sustained recovery in retail sales. . But supply constraints due to a shortage of microchips have led to a long waiting period for some vehicles.
“Our interaction with the industry’s major distribution partners reflects a mixed sense of optimism and uncertainty. Two-wheeler volumes are expected to remain low, while passenger vehicle demand is expected to recover more quickly thanks to personal mobility preference, supported by low stock (10-20 days), “Motilal analysts said. Oswal Financial Services in a report.
Following the lifting of state lockdowns, inquiries for passenger vehicles and tractors have improved, but are still below January and February levels for passenger vehicles.
The auto industry came under pressure from the first week of April when Maharashtra imposed strict lockdown measures. Delhi, Haryana, Karnataka, Tamil Nadu and others have followed suit. As a result, most manufacturers have stopped production or drastically reduced their production.
Some, however, like Bajaj Auto Ltd, continued to operate with limited capacity to meet export orders. With covid-19 infections steadily declining, especially in northern and southern India, most automakers have resumed operations from mid-May.
Tractor manufacturing, however, has not been as badly affected as other segments of the auto industry.
“The stock of passenger vehicles at dealerships is quite low and nearly 85 to 90% of dealerships are open in the second half of June compared to only 15 to 20% in May. Most dealers have seen a good ramp-up in inventory levels over the past two weeks and the trend is expected to continue. We expect a similar retail recovery to the one we saw last year after the first wave of covid. However, the entry-level two-wheeler might not experience a faster recovery, ”said an automotive analyst at a foreign brokerage firm.
mint reported on June 10 that India’s major passenger vehicle manufacturers plan to start ramping up production from June with hopes that sales will begin to pick up as states begin to unblock and the number of cases of covid-19 would start to decrease.
Maruti Suzuki India Ltd, the country’s largest automaker, is expected to produce 165,000 to 169,000 vehicles this month, bringing it to 174,000 vehicles in July. Tata Motors Ltd plans to increase passenger vehicle production to 25,000-30,000 units by July. Hyundai Motor India is also expected to push production to 60,000 units as it plans to start a third shift.
Passenger vehicle sales are expected to increase by 17-20% in FY22, according to the rating agency ICRA, compared to 22-25% expected before the second wave. The rating agency expects sales of tractors to grow in the order of 1 to 4%, against 4 to 6% forecast earlier.
“Even though uncertainty regarding the course of the pandemic exists, the underlying demand drivers for the industry remain intact. The expectation of healthy cash flow for the rabi, the continuation of various government support programs, the availability of sound financing and a normal monsoon forecast are likely to help farmers, ”said Rohan Kanwar Gupta, vice president of ICRA.
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