India Ratings and Research (Ind-Ra) has published the October 2021 edition of its credit news digest on India’s auto sector. The report highlights the trends in the sub-segments of the auto sector, including passenger vehicles (PVs) and two/three-wheelers (2W/3Ws), with a focus on sales volumes growth, market share movement, change in commodity prices and recent rating actions.
Ind-Ra believes the 5% sequential increase in the
domestic auto sales volumes (excluding CV) in October 2021 was driven by a
demand recovery in PVs and stable 2W demand, aided by the festive season and
decline in daily covid cases, the resuming of physical attendance at
educational institutions and workplaces, and continued consumer preference for
personal mobility. However, the growth was constrained by an increase in
vehicles prices, due to increased raw material prices, and lower production
levels on the account of supply chain issues, especially the shortage of
semi-conductor chips. The overall production and sales volumes decreased by
22% yoy and 21% yoy, respectively, in October 2021.
Domestic PVs sales witnessed a sequential recovery and rose 41% mom in October 2021 but fell by 27% yoy. Domestic PV demand continued its shift towards utility vehicles (UVs), while original equipment manufacturers prioritised the production of UVs over other types. As such, the decline in UV sales at 2% yoy was lower than that in the overall PV segment. Export sales volume remained stable on yoy basis in October 2021, but declined by 26% mom owing to an increase in domestic sales.
Domestic 2Ws sales remained stable on a sequential basis in October 2021, rising by 1%, but declined by 25% yoy. The recovery in 2Ws was constrained by the increased cost of ownership on account of price hikes by original equipment manufacturers and increased fuel prices in India. There was negligible yoy growth in exports volumes in October 2021 due to supply-side issues.
Domestic 3Ws sales continued to be low owing to a shift in consumer preference towards personal mobility and financing issues. However, it reported growth of 9% mom and 19% yoy in October 2021, primarily on account of a lower base.
Electric 2W sales volumes were above 1,000 units for continuous five months (October 2021: 1230, September 2021: 1,408, August 2021: 1,013, July 2021: 1,270, June 2021: 1,091). Ind-Ra believes that consumer preference towards electric 2Ws will improve in the near-to-medium term, aided by the subsidy offered by the government and increasing fuel charges.
In 7MFY22, the overall industry production volume and domestic sales increased by 19% yoy and 5% yoy, respectively. While PVs and 3Ws sales were higher by 36% yoy and 48% yoy in 7MFY22, 2Ws sales were constant on yoy basis. Exports grew by 73% yoy basis in 7MFY22.
Despite the festive season, retail sales for PVs and 2W fell by 11% yoy and 6% yoy owing to semi-conductor shortage in PVs and low demand for entry level 2W, respectively; 3W and CV volumes increased by 74% and 26%, respectively. Inventory at the dealership levels for PVs declined to 10-15 days in October 2021 (September 2021: 15-20 days, August 2021: 25-30 days). Ind-Ra believes the decline was mainly due to the curtailed production due to the semiconductor chip shortage. Inventory at 2W dealerships further increased to 40-45 days in October 2021 (September 2021: 30-35 days, August 2021: 20-25 days) on account of low consumer demand owing to the increase in ownership cost.
In line with Ind-Ra’s expectations, the industry continued to witness sequential growth in October 2021, though it was moderated by lower production levels due to supply chain challenges and low consumer demand. Ind-Ra expects the semiconductor crisis to continue to impact PV production volumes in November 2021. 2W volumes might remain moderate owing to low consumer demand in the entry level segment.
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