Demand for tractors, motorcycles, utility vehicles and small cars remains subdued in the rural areas, say manufacturers. Farm incomes have been under pressure with wages in the hinterland growing at a lower pace and also because unseasonal rainfall in northern and western states in February and March damaging the ready-to-harvest crop. With the monsoon deficient in some regions — Karnataka and Maharashtra — and excessive in some states, like West Bengal, it’s possible some of the crop could be damaged.
A Srinivasu, national sales head of Hero MotoCorp, confirmed demand in rural areas was muted. “Demand in the rural market was weak in the first quarter. If the monsoon is good we expect a recovery in the second half of the fiscal,” Srinivasu said in a recent conversation with sector analysts. Mahindra and Mahindra (M&M) is also facing the pressure as the utility vehicles and tractors sales failed to pick up in April – June quarter. While volumes in the tractor and utility vehicle segment dropped by 18 and 5% y-o-y in the April – June quarter to 59,150 and 49,354 units respectively. As a consequence, net sales dropped by 2.98% y-o-y to Rs 9,70,805 crore.
Pawan Goenka, executive director, M&M, in the press conference for announcing the quarterly results said that pressure on the rural economy and the agriculture sector continues and the less than expected growth in the tractor segment is worrying.
“This year monsoon is very important as the increase in farmer’s disposable income depends on the harvest. If the monsoon is good we will see growth during the festive season,” added Goenka.
According to analysts, motorcycles, tractors and utility vehicle sales depend on the well being of rural India for incremental increase in volumes. Manufacturers like M&M and HeroMotoCorp have been the manufacturers who have been negatively impacted by the slow down in the rural economy. Both Hero Motocorp and M&M draw 55-60% of their motorcycles and utility vehicle volumes from the rural market
“Management lowered its industry guidance to 3% compared to 5-7% growth earlier as motorbikes are expected to under-perform because demand in rural areas was weak and sales in urban India also eased in the first quarter,” said J P Morgan in a report
In the April to June quarter, motorcycle volumes in the domestic market of Hero Moto Corp declined by 2% y-o-y to 1451644 vehicles as the economy and executive level motorcycles failed to gain any traction in the rural markets. Net sales for the quarter declined by 2.02% y-o-y to Rs 6,85,698 crore from Rs 6,99,940 crore in the year ago period.
“The company is also open to incentivise the dealers and increase discounts if sales remain weak,” said Kotak Institutional Equities in a report.
Less than expected growth in the rural market had an adverse impact on the light commercial vehicles and small or the entry level cars. Tata Motors, the country’s largest commercial vehicle manufacturer – saw volumes in the LCV segment decrease by 19 % to 38934 units in the first quarter.
Analysts say that the small car segment also has been adversely impacted by slowdown in the rural economy.
Volumes of Maruti Suzuki Alto increased marginally by 1.03% y-o-y to 65241 units in the April to June quarter while the same for Wagon R increased by 3.67% y-o-y to 39560 units during the same period. Volumes of Hyundai Eon declined by 7% y-o-y 18005 units as the small cars failed to gain traction in the domestic market.
Kumar Kandaswamy, Partner, Deloitte said that for rural market to start growing we have to wait for the festive season and the harvesting season in January and February.
“In the rural market the demand for vehicles was certainly muted during the first quarter. The small or entry level cars traditionally get traction from the non metro and rural markets. So a slowdown in the rural market will impact the volumes,” added Kandaswamy.