Auto companies eye 7th Pay Commission windfall, push stocks way ahead of festive season

By: | Published: September 3, 2016 6:17 AM

According to industry experts, the implementation of the pay commission will have an immediate impact on the motorcycles and scooter sales. The beneficiaries in this case will be Hero MotoCorp and Honda. Hero’s Glamaour and Splendour i-smart are expected to see substantial increase in volumes while Honda’s Activa may breach the 2.5 lakh units sales per month

Going by the sales numbers for August, two-wheeler and car makers appear to have pushed stocks to dealers ahead of the festive season. With government employees having received a higher salary for August together with arrears — following the recommendations of the 7th pay commission — companies are hoping some of this will be spent on cars and bikes in the coming months.

Analysts say there has been a further inventory build-up on expectations of a strong festival season. “We note that volume growth on a year-on-year basis would likely remain strong over the next two months due to the early festival season,” according to analysts at Kotak institutional Equities.

With Ganesh Chaturthi to be celebrated for 11 days starting September 5, and the revocation of the ban on the registration of large diesel vehicles in the national capital region (NCR), auto makers are hopeful of a busy festive season. They expect lower interest rates on auto loans from banks and other lenders to aid sales.

According to Sumit Sawhney, the MD&CEO, Renault India, this year’s festive season could prove to be much better than last year. “This festive season should be better as we have seen healthy distribution of monsoon across the country. The implementation of the pay panel’s recommendation will also help. Overall the sentiment has improved a lot as interest rates have also come down,” added Sawhney.

Maruti Suzuki and Mahindra and Mahindra (M&M) reported good volumes in August, up 13% and 29% respectively. Hero MotoCorp clocked a volume growth of 28% y-o-y to 6,16,424 units while HMSI saw volumes grow a smart 25% growth y-o-y to 4,66,342 units. Bajaj Auto also saw domestic volumes grow by a whopping 27% on the back of strong demand for its offerings CT 100 and Platina Electric.

Typically, sales during the festival period—September to November—account for a third of the total sales during the year. In FY16, for instance of the total sales of 27,89,678 units, approximately 26% or around 7,37,460 cars were sold during the festive season.

Puneet Gupta, associate director of IHS Automotives, expects the volume growth in the three months to increase by minimum 15% y-o-y as the top three players have launched all the popular products, reduction in interest rates will reduce ownership cost and good monsoon will lead to good sowing of crops.

For Maruti Suzuki, the demand for Baleno and Vitara Brezza may increase substantially in the next few months which may increase the waiting period for the vehicles. Moreover, the demand for small or mini cars, which have been seeing a decline in volumes over the last six months, may get a boost with government employees making purchases.

According to a spokesperson for Maruti Suzuki, the festival season gives the company an opportunity for incremental numbers while it targets double digit growth over the year.

“Overall, the sentiments are positive, interest rates have softened, fuel prices are favourable, good and timely monsoon was there so industry at large will benefit from this positive mood. The popular AMT technology has also been expanded to Alto and WagonR. These factors will increase the pull among customers during the festival season,” added the company’s spokesperson.

According to sources, Hyundai – the second largest car manufacturer in the country- has increased the production of Creta as the company is expecting substantial increase in bookings in the next few months.

“We will get to see one the best festive season this year and have already received good reviews about festival buying before the Onam festival. The implementation of seventh pay commission will also help increase the volumes this year during the festive season,” said Rakesh Srivastava, senior vice president sales and marketing, Hyundai Motor India.

French car maker Renault is also gearing up for increased demand for Kwid during the festive season. The company has unveiled the new variant of the small car with a one litre engine last week. Another variant of car with automatic manual transmission (AMT) may also hit the market by Diwali. In August Renault saw the total volumes go past the 12,000 unit mark for the first time in the domestic market.

Toyota on the other hand has started deliveries of the Innova Crysta in the NCR region from this month.

“We are not offering high discount on Innova Crysta and Fortuner as customers always prefer to buy these products over others in the segment. We expect sales to increase manifold during the festival as customers who shelved the plans to buy big vehicles will think of coming to the market,” said a Toyota dealer in Delhi.

According to industry experts, the implementation of the pay commission recommendations will have an immediate impact on the motorcycles and scooter sales. The beneficiaries in this case will be Hero Moto Corp and Honda Motorcycles and Scooters (HMSI). Hero’s Glamaour and Splendour i-smart are expected to see substantial increase in volumes while Honda’s Activa may also breach the 2.5 lakh units sales per month. Bajaj will also be positively impacted as the company now has two offering in the economy or the entry level segment.

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