December auto sales could skid sequentially on production constraints, purchase deferrals due to ‘inauspicious’ period

• Indian automakers started December on a strong note thanks to year-end discounts and the wedding season boosting sales.
  
• While most segments are likely to report healthy year-on-year growth, sales are likely to skid sequentially due to production constraints and customers deferring purchases.
  
• Overall, the passenger vehicle segment remains robust, while the two-wheeler segment is showing signs of recovery, according to research firms.
  

Indian auto makers started December on a strong note thanks to year-end discounts and the wedding season. However, analysts expect the overall sales in December to be lower than November due to production constraints and customers deferring purchases in the second half of the month due to an ‘inauspicious’ period.

“In December 2022, passenger vehicle volumes are likely to be higher YoY, though volumes would be lower MoM due to production constraints. Further, tractor volumes are likely to be better on a YoY basis but decline MoM due to seasonality,” said a report by Emkay Research.

The low-base effect of the previous year is likely to reflect in the year-on-year growth numbers across all vehicle segments, but sequentially there could be declines in certain pockets, especially passenger vehicles. Analysts at Dolat Capital expect the two-wheeler segment to report growth on both year-on-year as well as sequential basis.

“PVs demand is strong and a high order backlog to drive volume growth in the coming quarter. However, semiconductor shortage issues continue to persist. Two wheeler volume is showing signs of recovery and expect further improvement led by recovery in rural demand,” said a report by Dolat Capital.

Passenger vehicle demand remains strong

Passenger vehicle demand has remained robust during December, according to the channel checks by analysts at Emkay Research. Car makers reported a healthy surge in passenger vehicle sales in the third quarter of FY23, first driven by the festive season and then boosted by the wedding season.

“PV industry’s volumes should witness robust growth (15%+ YoY) on account of a large order book. Among OEMs, we estimate domestic volumes to grow by 64% YoY for Mahindra & Mahindra, and 25% for Tata Motors while declining slightly by 4% for Maruti Suzuki India due to six-day maintenance shutdown,” the Emkay report said.

In addition to the maintenance shutdowns, the spread of Covid in China has also resulted in the chip shortage issue worsening, leading to a production slowdown.

However, what has remained unchanged is the customer buying pattern, with entry-level cars continuing to be shunned by buyers. According to Dolat Capital, buyers are opting for more premium cars, which is also visible in the waiting periods being higher. As a result, car makers are now offering significantly higher discounts on entry-level cars when compared to last year, according to the research firm.

Two-wheeler sales showing signs of recovery

The two-wheeler segment is expected to post a strong 15% YoY growth in sales thanks to the wedding season demand, according to the Emkay report. However, the boost lasted only till the second half of December which is when the ‘inauspicious’ period kicked in.


Source: Emkay Research

Overall, though, analysts believe the two-wheeler segment is showing signs of recovery. “Two-wheeler volume is showing signs of recovery and we expect further improvement led by recovery in rural demand,” said the Dolat Capital report.

On a sequential basis, the research firm expects companies to post a volume growth in the range of 0.3-10%.

Interestingly, the two-wheeler segment is also witnessing weakness in the entry level, just like the passenger vehicles segment. Unlike car makers, two-wheeler companies are not offering material discounts to lure customers.

Rural demand to pick up in Q4

A good Rabi season aided by healthy reservoir levels and a pickup in government spending is expected to boost sales of two-wheelers and tractors, according to Dolat Capital.

Amongst the top beneficiaries of this would be Hero MotoCorp, M&M, and Ashok Leyland, according to the firm, but it adds that commercial vehicle demand could moderate in FY24 due to rising interest rates, limiting the upside potential for the segment.

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