No full recovery yet, low base triggered auto sales

Written by Yogima Seth | New Delhi | Updated: Dec 7 2009, 07:24am hrs
Last years global credit crisis also had its ripple effect on relatively insulated India, with sales of automobile and consumer durable firms hitting the nadir in November 2008. That low base effect is now getting reflected, almost deceptively, as spectacular top line growth of some of the Indian companies, especially auto firms that posted the best-ever November sales this year.

The base effect would continue for a couple of months at least, while analysts warn that it would be premature to conclude that the industry is out of the woods.

Industrial sectors such as auto and consumer durables have been showing huge growth in sales for the last few months, especially during November, which saw best-ever monthly sales by majority of the automobile companies.

Analysts maintain that much of the year-on-year growth in sales is attributable to the base effect as last year Q3 sales were the most severely hit in the aftermath of the global financial crisis.

The effect of last years law base got best reflected in the November sales figures of automobile companies which individual firms released in the last few days. For instance, sales of Tata Motors went up 65% in November compared to the same month last year. Bajaj Auto saw a jump of 83% and commercial vehicle manufacturer Ashok Leyland saw a two-fold sales jump.

Sales are going up but we must not forget that the industry was flat during the same time last year and so the double-digit growth over a period of two years is not exactly something to cheer about, RC Bhargava, chairman, Maruti Suzuki India, said.

He has a point. According to Society of Indian Automobile Manufacturers (Siam) figures, Tata Motors, Ashok Leyland and Bajaj Auto had registered a decline of 23.9%, 66.7% and 51.3%, respectively in domestic sales in November 2008 vis-a-vis November 2007.

The credit crisis started in September 2008 and the Indian economy felt the impact from November onwards when sales declined drastically across sectors. This acted as a lower base for November sales this time and since the impact of low base will continue for some more time, I expect similar double-digit growth in next four months if the stimulus measures remain intact Abdul Majeed, auto analyst and partner, Price Waterhouse.

The story is the same for the consumer durables sector where companies like Samsung India Electonics and Godrej Appliances have seen a growth of 20-25% and 30% respectively in November vis-a-vis flat sales or negative growth in November last year. We have witnessed a healthy 20% plus growth in November this year for our consumer electronics business as compared to flat sales in November 2008 largely on account of lower base, positive consumer sentiment post Diwali, the ongoing wedding season as well as the positive macro economic indicators in the country, R Zutshi, deputy managing director, Samsung India Electronics said.

According to Kamal Nandi, vice president (sales and marketing), Godrej Appliances, since Diwali did not fall in November last year and there was a slowdown because of the recessionary impact, the company had seen a de-growth vis-a-vis November 2007 which was a Diwali month that year. However, this year we have seen a growth of 30% and expect the growth momentum to continue over the next three months to help us achieve an estimated Rs 1,800 crore revenue in 2009-10 as compared to Rs 1,450 crore in 2008-09, he added.