India's Automakers Shake Off Multi-Year Slump That Started Before Pandemic

India's auto industry is on track to emerge from a sales slowdown that started even before the pandemic, an analysis of industry data shows.In 2019, India’s auto boom went bust: passenger-vehicle sales contracted for 11 out of 12 months, the worst-ever decline in annual sales. Automakers cut investments and production, dealerships shuttered nationwide, and job losses in the sector soared.Then the pandemic struck.Indian automakers clocked zero sales in April 2020—the first month of the world’s strictest lockdown to contain the spread of the coronavirus. Since then, auto sales have recovered in fits and starts, navigating a global chip shortage and uncertainties stemming from the pandemic.Things are looking up now.Car sales in India have remained above the 300,000 mark for six straight months of fiscal 2023, according to industry data collated by Nirmal Bang Securities Ltd. That momentum is only going to build over the rest of the financial year for the best performance in at least five years and sustain itself in the next, analysts told BQ Prime..Auto Sales In November 2022: Demand Cools After Festive Season Spike, Say Analysts.“With economic conditions stable, most OEMs [original equipment manufacturers] will have the best year since FY19,” Varun Baxi, research analyst - auto and auto ancillaries at Nirmal Bang, told BQ Prime over the phone. “The only overhang is the real driving emissions norms, which come into effect April 1, 2023, but apart from that, auto sales will sustain momentum in FY24 as well.”Real Driving Emissions norms, the second phase of Bharat Stage-VI emission standards, will require cars to achieve emission targets in real-world conditions.The passenger vehicle segment has an order book of 8 lakh plus units, Mitul Shah of Reliance Securities said, and will continue growing in double digits in 2023-24.Requests for comment from industry body Society of Indian Automobile Manufacturers remained unanswered as of publishing this story..‘Premiumisation’India’s two-wheeler market is afflicted with a dichotomy: premium motorcycles (150 cc and above) are finding takers by the hordes but the entry-level motorcycles (100-110 cc) – the bread-and-butter of Hero MotoCorp Ltd. – have had a mixed response at best.That fact isn’t lost on India’s largest two-wheeler maker, as its senior management harped on “premiumisation” during the company’s latest earnings call.“We are working on launching premium models over the next few quarters and you will see every year that’s coming,” Chief Financial Officer Niranjan Gupta told analysts after Hero MotoCorp’s second-quarter results. “So, that will actually improve the profile, and obviously as the rate cycle and inflation cycle peaks, then we will have the dividends of the commodity softening as well. So, I think there are things that augur well.”The auto industry is still far from pre-pandemic levels but festive retails are 95% of pre-Covid, Gupta said. That’s an encouraging sign. “On top of that, when we look at other fundamentals – GST collections are good, crop realisations are good – we see that consumer confidence is coming back,” he said.“Now, how fast that translates into industry volumes moving forward – that could be a matter of a few months here and there – but I think we’ll stay positive…on the back of a very strong festive performance by the industry.”.Distress In The HinterlandStill, Shah of Reliance Securities is wary. Rural sales continue to be a challenge. Demand is recovering—on the back of a healthy monsoon and rabi sowing—but at a slower pace.CV sales in India topped the one-million mark in FY19, but have lagged since then – first due to a slowdown and then a lockdown. An upcycle now is expected to maintain its momentum amid an easing chip shortage, increasing economic activity and high capacity utilisation, according to a Motilal Oswal report. Tractors was the only segment to see a sequential decline in volumes in July-September as OEMs were focused on inventory correction in April-June, Motilal Oswal said. Exports have been under pressure due to various frictions in global trade.“For two-wheelers and commercial vehicles, rural revival is critical,” Shah said. Purchasing power hasn’t kept pace with price hikes, he said. For commercial vehicles, there’s scope for growth, but that’s dependent on the government’s infrastructure spending going forward.“What we are seeing now is pent-up demand (in the aftermath of the pandemic),” Shah said. “There can be a sizeable moderation in demand (going forward).”A spokesperson at Bajaj Auto Ltd. echoed the sentiment. While the Chakan, Pune-based automaker is seeing robust three-wheeler demand and “fantastic growth” in the premium two-wheeler segment, entry-level volume is low due to rural distress.“People’s spending power is low,” the spokesperson said. “We’ll have to wait and watch for the next two months to see whether this festive-season demand is sustainable.”.Festive Season Leaves Two-Wheeler Dealers With Inventory Pile-Ups.The Electric OverdrivePerhaps, electric mobility is the spark that India’s auto industry needs.Varun Baxi of Nirmal Bang expects electric two-wheelers to account for 30% of all new two-wheelers sold in India by the end of fiscal 2025. Among passenger vehicles, that level of penetration will be achieved by 2029-30. Shah of Reliance Securities sees high double-digit growth for electric two-wheelers over the next five years.In the quarter ended Sept. 30, sales of India's top six electric two-wheeler makers increased 6% sequentially to 1.15 lakh units, according to a BQ Prime report dated Oct. 12.“Penetration of electric two-wheelers has doubled to 5% compared with last year,” Manish Raj Singhania, president of Federation of Automobile Dealers Associations, told BQ Prime. “While festivals have boosted sales for the period, the strong momentum is likely to continue even after the festivals.”Sabyasachi Chakraborty, national head of sales at Greaves Electric Mobility, does not expect the industry to opt for aggressive pricing, as even the current sales trend will ensure higher penetration of electric two-wheelers, he said.The financing of electric two-wheelers has also received a push with increasing participation of key players, including banks, non-banking lenders and startups. “Financing of electric two-wheelers has been good with major institutions offering as high as 90% financing for such vehicles,” Chakraborty said..Why Buying An EV Remains A Challenge In India.No More A Small-Car Market?According to SIAM’s October sales data, utility vehicles now account for a little over 50% of India’s passenger-vehicle market. The Rs 8-10 lakh price bracket has become the sweet spot, even for first-time buyers.“The base is getting bigger,” Shah of Reliance Securities said. “Aesthetics, robust appeal and safety features are factors driving purchasing decisions now”, rather than just the price or fuel efficiency.Baxi of Nirmal Bang has a different take on this. First-time buyers have moved on from an Alto or Santro to a Baleno or i20. The SUV audience is a result of “upgradation” – buyers trading in their premium hatchbacks for a compact SUV.The keyword here, again, is “premiumisation”. The Indian car market has definitely moved up in that respect..Maruti Suzuki Seeks To Shed ‘Small-Car’ Tag In Quest For 50% Market Share

India's Automakers Shake Off Multi-Year Slump That Started Before Pandemic

Auto sales in India are set to record their best year since at least FY19. Two-wheeler sales, however, remain a pain point.

Choose a plan