No green shoots in sight for the automobile sector

No green shoots in sight for the automobile sector

Last Updated: Sat, Aug 24, 2013 05:58 hrs
Men walk inside a Tata Motors showroom on the outskirts of Agartala

Timely arrival of the monsoon has not done much for automobile sales. Auto sales continue to post a decline annually. Typically, sales tend to pick up in July as inventory build-up begins for the festive season; this year has been different. In July, most auto companies reported a decline in sales compared to the corresponding month last year. Inventory push for the coming festive season in select segments such as two-wheelers did not help report growth.

Overall, the industry declined 1.3 per cent annually but sales were up month-on-month by 1.2 per cent in July. Compared to last year, decline in sales has been seen across all segments. Passenger vehicles sales fell 8.3 per cent year-on-year and 5.3 per cent month-on-month, while commercial volume declined 15 per cent year-on-year and 1.6 per cent month-on-month. Two-wheeler sales stayed flat annually and were up 1.4 per cent month-on-month. Select players such as Honda, Ford and Honda Motorcycle and Scooter registered decent volumes on the back of new launches. Tata Motors, Bajaj Auto, Mahindra & Mahindra, TVS Motor and Ashok Leyland registered subdued volumes. Even the light commercial vehicles segment, which had reported robust growth over the last several years, also declined in July.

The going does not look promising, analysts believe. Maruti at the start of the year was expected to report robust sales growth due to the low base of the previous year. However, Maruti Suzuki's volumes rose 1.3 per cent annually but declined 1.4 month-on-month in July, on a low base of last year. Analysts say the launch of new models such as Honda's Amaze and Ford's Ecosport has impacted Maruti's utility vehicle volumes, which declined by 37 per cent. Mitul Shah of Karvy says: "Though the ongoing slowdown in the auto industry would impact Maruti Suzuki's volume in the near term, we expect remarkable volume growth for the company in FY15, backed by healthy demand during Election 2014."

Rising diesel prices and interest rates will keep the pressure on automobile sales. Also, the first quarter saw lower input costs for most companies, which helped them improve margins. However, these gains might well be reversed in the second quarter, as the rupee's fall will negate the gains. According to Sharekhan, volumes could recover in the second half of the financial year, on account of the festive season and a low volume base in the corresponding period of last year.

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