Highlights:
- A disappointing set of numbers for March by auto majors in all segments
- New axle load norms, tight liquidity and non-availability of finance weigh on CVs
- Postponement of the festive season to April and lower-than-expected Rabi sowing dampened tractors sales
- Two-wheeler segment is the worst hit with inventory reaching alarming levels
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Indian automobile sector continues to be in a slow lane as is evident from March 2019 volume numbers. The slowdown is due to multiple challenges such as an increase in the total cost of ownership due to mandatory long-term insurance and implementation of safety regulations, higher cost of retail finance and moderate economic activities ahead of elections.
Commercial vehicle (CV) segment sales were flat for the players in the space. The segment continues to face challenges, primarily, due to the liquidity crunch, non-availability of retail finance, lagged impact of new axle load norms and a slowdown in economic activities ahead of elections. Tractor segment also continued to remain weak on the back of the higher base of last year and subdued farm sentiments.
Three-wheeler (3W) sales were mixed on the back of very high base for last year. Two-wheeler volumes were subdued due to weak consumer sentiments led by higher cost of ownership, the high base of last year and adverse macro factors.
Macro challenges led by liquidity problem, financing issues, rising interest rates, lagged impact of new axle load norms and a slowdown in economic activity ahead of elections dampened customer demand for CVs. The long-term outlook, however, continues to be positive, primarily, due to the government’s focus on construction and infrastructure and increase in mining activities.
Company wise, Tata Motors registered a 1 percent year-on-year (YoY) growth in CV volume led by 1.9 percent growth in the M&HCV segment and 0.3 percent in the LCV segment. Eicher Volvo witnessed a decline of 7.8 percent. Ashok Leyland and M&M posted a decline of 4 percent each in their monthly volume, primarily, due to a significant decline in M&HCV segment volume.
Car segment continued to show weakness for the ninth consecutive month with no signs of recovery. Inventories were at alarming levels. Negative sentiments in the space were due to an increase in total cost ownership led by rising interest rate and mandatory long-term insurance that dampened consumer sentiments. Hence, companies in the space have posted a decline in PV volume for the month of March 2019. New product launches though helped companies.
The leader, Maruti, posted a decline of 4 percent in its volume for the month. Tata Motors’ passenger car segment witnessed a decline of 12 percent (YoY). The management of Tata Motors expects good months ahead as its new SUV, Tata Harrier has been receiving good traction. M&M, on the other hand, posted a growth of 4 percent in its monthly volume, driven by its newly-launched XUV300 model.
The two-wheelers space has been the worst hit with inventory days touching 100 versus normal inventory of 20 days. Hero, the leader in the space, witnessed a significant decline of 20.4 percent, Eicher, the leader in premium bike segment, also witnessed a decline of 20 percent in its monthly sales numbers and TVS posted a decline of 2 percent. Bajaj Auto, on the other hand, witnessed 38.5 percent growth in its volume on the back of aggressive pricing actions by the company on its entry-level segment which helped it captured Hero’s market share.
Eicher Motors has announced the appointment of Vinod K Dasari, ex-CEO and MD of Ashok Leyland, as the CEO of Royal Enfield. Eicher Motors will get a new perspective from its new CEO.
The overall 3W market posted mixed numbers in March 2019. TVS posted a very strong growth of 32.6 percent and M&M posted a growth of 5.2 percent. Bajaj Auto, the leader in the space, posted a decline of 12.6 percent, primarily, due to a high base of last year.
Tractor segment has also come under pressure due to the postponement of the festive season to April and lower Rabi sowing than expected. Escorts posted a decline of 1.1 percent and M&M posting a significant decline of 30.1 percent. M&M management expects positive sentiments on the back of government's focus on rural development, a good forecast for horticulture production and an increase in the MSP that will positively impact demand for tractors in future.
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Disclaimer: Moneycontrol Research analysts do not hold positions in the companies discussed here.
