Worry lines: Hero Moto, Honda, Royal Enfield to cut production as sales growth slows

Updated: March 20, 2019 2:19:11 PM

Two-wheeler sales have been sluggish since September during the current fiscal leading to a growth of 6.95% between April-February against last year’s 14% growth in the same period.

Two-wheeler companies decide to cut production due to slow growthTwo-wheeler companies decide to cut production due to slow growth (Representataional image)

By Pritish Raj

With two-wheeler dealers saddled with inventory of upto 80-90 days against the normal level of 20-30 days, major manufacturers including Hero MotoCorp and Honda Motorcycle and Scooter India (HMSI) have decided to cut back their production by around 15% from the current month till May.

While Hero and Honda declined to comment on the development, sources said they have communicated the same to dealers’ association Federation of Automobile Dealers Association (FADA). Nikunj Sanghi, director, international affairs at FADA, said it has been communicated to the manufacturers that inventories have reached alarming levels and they expect them to recalibrate their production over the next few months. A Royal Enfield spokesperson, however, said, “FADA has not contacted us on the company’s inventory levels or production plans, nor has any such information been sent to FADA officials by the company”.

Royal Enfield has already trimmed its production guidance twice to around 8.8 lakh units against 9.5 lakh units for FY19. During the April-February FY19 period, the company produced 779,810 units and to achieve the revised numbers, Royal Enfield will have to produce over 1 lakh units in March.

Two-wheeler sales have been sluggish since September during the current fiscal leading to a growth of 6.95% between April-February against last year’s 14% growth in the same period.

Companies generally align production to demand because once the inventory with dealers crosses the normal mark, they run short of space to store the products.

Hero MotoCorp’s production has been on the downside since December. While output remained flat year-on-year (y-o-y) in December, it fell 13.54% y-o-y in January. Production in February also remained flat.

READ ALSO | Anil Ambani saves himself from jail; settles Rs 550 crore Ericsson dues

HMSI had cut down production in December as inventory went up to over 60 days. Unlike nearly 4 lakh units produced every month, the company manufactured only 2.48 lakh units. In January and February, output fell 12.64% y-o-y and 14.93% y-o-y, respectively, and the monthly production in March is expected to see a 15% cut. For Royal Enfield, production fell nearly 9% y-o-y in January and 13% y-o-y in February.

Similar is the case with passenger vehicles, which is set to witness one of its slowest growth in the last four years at around 3% in the current fiscal, which has also led companies like Maruti Suzuki, Mahindra and Mahindra and Tata Motors to cut productions. The dealer inventory for PVs is around 50-60 days against 20-35 days.

Maruti Suzuki India, which is cutting its monthly production by around 20%, has posted a meagre y-o-y growth of 6.7% between April-February compared to 13% growth it registered in FY18. In fact, Maruti witnessed a y-o-y decline of 0.6% in Q3FY19.

Mayank Pareek, president, PV business unit at Tata Motors, said production is adjusted as per the market demand. “Production plans every month are aligned with market demand. This is a common phenomenon in the auto industry,” he told FE without elaborating.

For Mahindra & Mahindra (M&M), while the newly launched XUV300 has seen substantial bookings and reasonable retails, the company will correct the production of other models starting this month, a person familiar with the matter said. M&M did not respond to queries sent till the time of going to press.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.