The domestic automobile industry witnessed a 75% yoy decline in sales volume in 1QFY21, broadly in line with India Ratings and Research’s (Ind-Ra) expectation (refer: Auto Woes to Intensify in FY21; Recovery Likely by Mid-FY22). However, the sales volume increased 258% mom in June 2020, led by the pent-up demand and demand for personal mobility to maintain social distancing with the easing of lockdown restrictions while public transportation is only partly operational.
Two wheelers (2Ws)
have demonstrated signs of a faster recovery than other industry sub-segments,
as forecasted by Ind-Ra, on account of a continuous demand from the rural
segment as well as 2W being the most-affordable vehicle, favouring personal
mobility. During 1QFY21, 2W domestic sales dropped 74% yoy, passenger vehicle
(PV) sales dipped by 78% and commercial vehicle (CV) sales fell by 85%. In June
2020, domestic automobile sales volume (excluding CV) declined 41% yoy, with PV
and 2W sales falling 50% and 39% yoy, respectively. It is a sharp improvement
from April and May 2020 when the total sales volumes had plunged 100% and 85%
yoy, respectively, amid the COVID-19 related lockdown. Ind-Ra expects improving
rural sentiments and continued preference for personal mobility over public
transport or shared mobility to remain the key growth drivers in the near term.
In the 2W segment, motorcycle sales volume declined 35% yoy compared to a 47% yoy drop in scooter volumes in June 2020 (1QFY20: motorcycles down by 73%, scooters down by 76%). Motorcycles accounted for around 69% of the total 2W sales in June 2020 (66% in June 19). Motorcycles outperformed scooters sales in June 2020 due to the higher demand from rural markets and tier 2, 3 cities. Ind-Ra expects this trend to continue in the near term, as around 50% of the motorcycle demand comes from the rural markets. Furthermore, the sales volume of motorcycles up to 125 cc, having a strong presence in rural and semi-urban markets, declined only 28% in June 2020 compared to the 47% yoy decline in sales volume of motorcycles above 125cc. With a strong rural focus and the portfolio focussed towards motorcycles under 125cc, Hero Motocorp Limited’s 2W market share was up to 42% in 1QFY21 (1QFY20: 36%). A lower channel inventory meant Hero’s production level in June 2020 was at 64% of June 2019 compared to 50% for the overall 2W industry.
In the PV segment, cars sales fell 58% yoy in June 2020 while utility vehicles (UVs) registered only 31% yoy decline (1QFY21: cars down by 82%, UV by 70%). Over the past few years, customers have displayed an increasing preference for UVs over cars, as seen through a 0.5% volume increase in UVs in FY20 whereas the overall industry fell 18% yoy. This trend continued in June 2020 as well. The new model / variant launches by original equipment manufacturers (OEMs) have also been in this sub-segment. In the cars sub-segment as well, the decline in the entry level ‘mini’ hatchbacks’ sales volume was lower than the overall sub-segment, as consumers continue to look at lower ticket items.
CV sales volume plummeted 85% yoy in 1QFY21, with a higher decline of 94% in medium & heavy commercial vehicles (MHCVs) against the 80% yoy decline in light commercial vehicles (LCVs). Apart from the COVID-19 led disruptions, MHCV demand continues to be impacted by the ongoing overall slowdown in economic activity coupled with the excess available capacity in the system. LCVs have fared better on increasing demand than MHCVs for last-mile connectivity. Mahindra & Mahindra Limited (‘IND AAA’/Stable) CV market share increased to 49% in 1QFY21 (25% in 1QFY20) on better sales of its LCV models compared to other CV OEMs.
According to Federation of Automobile Dealers Association, “at end-June, almost 100% dealership outlets (showroom and workshops) were operational across the country, barring a few cities and towns which have once again implemented stringent lockdown”. The industry continues to grapple with supply chain and labour issues due to COVID-19 led disruptions, with new lockdowns announced in various cities across the country and instances of some plants having to shut down as some employees were tested COVID-19 positive. However, Ind-Ra expects production and wholesale billings by OEMs to gradually increase as the industry settles in with the ‘new’ normal amid COVID-19. Improving rural and semi-urban sentiment augurs well especially for the 2W demand in the near-term. Retail demand is likely to sustain in the rural market and tier 2,3 cities. Demand from the urban market is likely to remain subdued amid tighter lockdown restrictions. Ind-Ra maintains that 2Ws followed by PVs are likely to register a faster recovery than CVs.
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