Automobile sales in the home market were up a reasonable good 12.1% year-on-year in May but some of this must be attributed to the favourable base and some key players outperforming peers.
The Q1FY18 period, it may be recalled, was the pre-goods and services tax (GST) roll-out quarter and had seen some de-stocking by manufacturers ahead of the imposition of the new indirect tax levy. Moreover, the transition to BS-IV fuel norms — across all categories of vehicles — saw producers raise prices, which resulted in sales staying somewhat muted. At 2.28 million units, the wholesale dispatches made by manufacturers to their dealerships in May might translate into strong retail sales, dealers observed.
The big surprise, as Nomura Research pointed out, was the fairly robust near 20% year-on-year growth in passenger vehicles in May; the brokerage had forecast a more modest 14% rise. The growth was driven by the spectacular performance from market leader Maruti Suzuki, which posted 24% year-on-year increase in May with models such as the Swift, Baleno and Brezza turning out to be popular. Ex-Maruti, the increase was a more sober 15% year-on-year.
If commercial vehicles (CV) posted a smart increase of 43% on an annualised basis in May, it was the favourable base effect that helped. The ban on overloading in northern states and growth in the construction sector contributed to the increase, brokerage Kotak Institutional Equities (KIE) noted in a report.
“Industry growth is driven significantly by overloading ban in certain key states such as Uttar Pradesh, Rajasthan and Andhra Pradesh, easy availability of finance and pick-up in road construction activity,” the brokerage wrote. Analysts expect the M&HCV segment to grow at a 7% compounded annual growth rate over the next two years.
Two-wheelers slowed down significantly, clocking in only 9.2% growth year-on-year compared with a stronger16.9% year-on-year in April. The modest performance was the result of a poor show from Honda Motorcycles & Scooters India (HMSI) resulting from capacity constraints. HMSI commands the lion’s share of the scooters market in the country with a share of 57%.
If Bajaj Auto posted a 23% annualised increase in sales in May, it too was thanks to a low base; volumes were down 13% year-on-year in May 2017. Hero MotoCorp, on the other hand, reported a near 13% year-on-year growth with analysts attributing it to better rural demand. Analysts at Jefferies believe growth in motorcycles will continue to outpace that in scooters; domestic sales of scooters declined 2% year-on-year in May compared with a 15% growth in motorcycles.
“Two-wheelers sales were a mixed bag with two key trends — faster growth in motorcycles vs scooters and strong growth for Eicher and Bajaj Auto,” analysts observed.
Analysts expect the growth momentum to continue in the auto sector with forecasts of a normal monsoon and improvement in road infrastructure. However, output in 2018-19 could grow a slower rate of 9-10% compared with 14.2% in 2017-18.