Representational ImageThough wholesale despatches (from manufacturers to dealers) continued to race downhill in September across all the segments in the auto sector, underlining that inventory correction is still not over, the silver lining during the month was improvement in retail sales, kindling hopes of even better sales in October as Diwali falls later during the month.
Wholesale volumes in September declined by over 22% year-on-year across segments, according to Society of Indian Automobile Manufacturers (Siam) data, making it the 11th consecutive month of decline as inventory continues to remain higher than normal.
In comparison, retail sales rose 8% y-o-y for PVs and 6.5% y-o-y for two-wheelers, in an indication that consumer demand was better than the previous months. The last time retails were better than wholesales was in November 2018. Overall retail sales during September rose 6.5% y-o-y.
Analysts said inventory is still high, particularly for two-wheelers and heavy commercial vehicles.
The wholesale volume growth across segments is likely to remain sluggish in the near term, they said.
“Volume growth is likely to continue to struggle, with rising regulatory costs on one hand and falling economic growth on the other. With no support in the form of GST cuts, we lower our volume estimates across segments,” analysts at Nomura wrote.
Siam president Rajan Wadhera said the retails in the Navratra period this year is higher for some manufacturers compared to last year. “We have to wait till October to make a forecast. The festive season could start a recovery but we will have to wait and watch,” Wadhera said.
While despatches across segments remain subdued in September, the worst hit was the commercial vehicle segment, which fell 39% y-o-y, impacted by plant shutdown between 8-15 days by manufacturers including Ashok Leyland and Mahindra & Mahindra (M&M) and Tata Motors to control high inventory.
This was the only segment where retail sales also fell by 9.15% y-o-y in September. Wadhera said sale of commercial vehicles is led by economic growth and demand for light commercial vehicles would improve on the back of the positive monsoon. The segment saw sales declining since January this year impacted by costlier finance options, the revised axle load norms and halt in several infrastructure projects.
"Our channel checks suggest relatively weak demand in the first phase of the festive season. Manufacturers will have to discount aggressively and reduce despatches to bring inventory under control," analysts at Jefferies said.
Manufacturers are looking to exhaust the stock available at the dealers at the earliest, which started piling up since the second half of 2018, owing to poor festive season demand. Volumes remained subdued as prices went up by as much as 20% in the last one year on account of hike in insurance premium and new safety regulations.