Auto Sector Sales to Remain Muted During Dec on Cash Crunch

Dynamic Equities | June 9, 2017, midnight

Auto sector will face a fall in December wholesale figure with the rural retail market suffering a double-digit fall against its urban counterpart because of the liquidity crunch post demonetization. The sector had tanked 7.75 per cent in March 2013. The last time the sector registered a decline was December 2015, when volumes slipped by only 0.17 per cent. Data released by the Society of Indian Automobile Manufacturers (Siam) highlights that 1.56 million units of automobiles were sold (in the domestic market) by companies last month which was down 5.48 per cent from 1.65 million units in November 2015. Sales dipped below the 2-million mark after three consecutive months.

Normalized availability of cash may happen by February-March 2017, after which growth is expected to pick up. December wholesales will be affected by a steep decline in retail sales on the back of demonetization.

Rural retails are impacted more (double-digit decline) as compared to the urban segment, due to the liquidity crunch. The outlook for the auto sector, however, looks positive after the normalization of cash crunch. Companies have introduced 100 per cent financing options and are giving discounts to bring buyers back to showrooms.

Segment-wise, the medium and heavy commercial vehicle (MHCV) segment will hopefully be impacted most. Around 30 per cent year-on-year drop in industry volumes can be expected.

On the other hand, the passenger vehicle industry is likely to decline about 11 per cent y-o-y. Annual maintenance shutdown at Maruti Suzuki and a limited wholesale push to clear off older inventory will keep volumes muted. The bookings of vehicles for Maruti tanked by 20 per cent y-o-y in November and it picked up by 7 per cent y-o-y in December.

Meanwhile, Maruti share price rose marginally, settled at Rs. 5319.55.

The two-wheeler industry growth is also likely to decline about 12 per cent. This should be driven largely by Hero Motocorp which will see a sharp decline of around 30 per cent because of poor offtake in rural segment.

This year, Hyundai has manufactured 5 lakh units for the domestic market and though the bookings have come down, Hyundai aim to finish the stock with the existing dealerships by giving higher discounts. Hence, Hyundai like the Maruti is unlikely to push much of its vehicles in the market in December.

To look at the positive aspect of this sector, the most prominent development in the sector was the announcement of new automobile development policy which rolled out after a delay of three years. This policy, though, did not please the existing original equipment manufacturers but it removed uncertainty plaguing the market as the industry was operating without any future vision.

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