Auto firms buoyed by festive sales, unsure of sustained demand after Diwali

A good monsoon resulting in a record harvest has propelled rural demand to surpass that in urban and semi urban areas.
Festive demand drove four-wheeler and two-wheeler sales in October, but industry executives and automobile dealers remain sceptical about whether the momentum will continue after the festival season, which will end in two weeks with Diwali.

Maruti Suzuki India, the country’s largest passenger carmaker, sold 163,656 units in the domestic market in October, up 18 per cent, compared with the 139,121 units sold in the same month last year. During the Navratri period, Maruti delivered 96,700 cars, against 76,000 last year.

Hyundai Motor India, on the other hand, said it had recorded its highest-ever monthly domestic sales, with cumulative figures of 68,835 units for October — an 8 per cent year-on-year (YoY) rise.

“The October sales performance has set a positive tone for the overall business environment. We are confident that Hyundai will continue to strongly contribute towards sustainable growth of the economy, community, and all its stakeholders,” said Tarun Garg, director (sales, marketing, and service), Hyundai.

Maruti’s growth was primarily driven by the entry-level segment, as first-time buyers showed strong appetite. In its compact segment (the Baleno, Swift, WagonR, and Celerio), sales grew 27 per cent YoY to 95,067 units during the month, against 75,094 in October 2019. The utility vehicle segment (the Vitara Brezza, Ertiga, and XL6) grew 10 per cent YoY to 25,396 units, compared with 23,108 units in the corresponding month last year. However, sales in the mini segment (Alto, S-Presso) declined marginally to 28,462 units during the month, against 28,537 in the same month last year.

Maruti’s management during a post-results analyst call on October 29 had said there had been pent-up demand from first-time buyers.

A good monsoon resulting in record harvest has propelled rural demand to surpass that in urban and semi-urban areas. Maruti’s share of sales from rural geography increased to 41 per cent in the second quarter of 2020-21, compared with 38 per cent during the same period last year.

Since the harvest period is over, automakers are yet to see signs of pick-up in urban demand, which can be a cause for worry.

R C Bhargava, chairman, Maruti Suzuki, said the company was yet to get clarity on the demand scenario in the post-festive period. “The impact of people wanting to buy vehicles for personal use and festivals will be over by December. The rural segment will continue to grow substantially. We don’t know what kind of urban demand there will be and how much income people in the urban markets will be left with,” he said.

On the contrary, Hero MotoCorp, the largest two-wheeler maker, said the company was witnessing a surge in demand from urban and semi-urban areas, which would drive sales after the festive season.

“After the festive season, the pent-up demand will be over. The fundamentals will play out and rural will continue to go strong. Unless there is something related to Covid, the positivity is likely to continue. We are cautiously optimistic about that,” Naveen Chauhan, head of sales at Hero MotoCorp, had said in a post-earnings conference call on Friday. Hero saw sales rising 34 per cent in October.

Analysts tracking the sector have cautioned that the factor of demand continuity after Diwali will need to be taken into account for the valuations of companies.

“The recent growth momentum is a cause for encouragement, but volume sustainability after November will need to be monitored amid an element of channel restocking carried out in September,” said analysts at ICICI Securities.

Auto dealerships have asked manufacturers to be cautious, warning that overstocking will hit their margin in case sale softens.

“Whatever pent-up demand was there will be over by the festive season. In urban markets, people are expected to spend a bit of their bonuses during Diwali, but beyond that, the economy has to improve for vehicle sales to go up. Fundamentally, nothing has changed in our economy, and Covid cases are rising. Small businesses are closing, which will impact rural demand,” said Nikunj Sanghi, an automobile dealer and member of the Federation of Automobile Dealers Associations of India.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel