Auto Sales in June 2022: PVs, CVs in green, 2Ws remain under pressure

New Delhi: Automobile industry has been witnessing a gradual improvement in month-on-month sales for most segments, supported by excitement of new launches, better availability of semiconductor chips, softening of commodity prices and an improved consumer sentiment in rural areas. On a year-on-year basis, the sales performance remained in green, barring the tractor segment.

While the demand in urban areas remains robust, the rural segment is also slowly witnessing improvement. However, two wheelers continued to remain under pressure in June 2022.

Reliance Securities, a retail broking firm expects the industry volume to improve gradually every month over the next 3-4 months backed by favorable monsoon led rural recovery and festival season kicking in Q2 FY23. “We expect retail demand to remain strong in FY23. Ongoing global geopolitical issues amid Russia Ukraine war have a negative impact on the business environment, which creates negative demand sentiment for consumption. However, softening commodity prices and stable fuel prices would support auto makers ahead.”

“We expect the automobile industry to witness double digit growth in FY23, while we expect M&HCV and 3W segments to outperform with over 30% volume growth in FY23. Nonetheless, long-term fundamentals continue to remain intact for the automobile sector, in our view,” it said.

The following is a segment-wise report of vehicle dispatches to dealers during June 2022.

Passenger Vehicles

According to the rating agency ICRA, the PV industry is expected to grow by 9-12% in FY2023, aided by improvement in semiconductor supplies vis-à-vis the previous fiscal.

Rohan Kanwar Gupta, Vice President & Sector Head, Corporate Ratings, ICRA said, “The underlying demand trends for the industry continue to remain stable; inventory restocking at dealerships is also likely to cushion wholesale dispatches against any moderation in demand on account of increase in cost of ownership/borrowing costs.”

“Chip supplies were impacted by the lockdowns in China towards the start of the fiscal; any incremental lockdowns in key geographies has a potential to adversely impact the industry’s prospects. Amid stiff competition, the pricing flexibility remains limited with OEMs. Even as OEMs have resorted to steady price hikes to pass on the hike in commodity prices to an extent, the profitability margins are expected to remain under pressure even in FY2023. Nevertheless, the credit profile of PV OEMs will remain healthy, supported by low leverage, strong liquidity and/or strong parentage,” he said.

Maruti Suzuki India Limited (MSIL) on Friday reported a drop of 1.3% in domestic passenger vehicle (PV) sales to 122,685 units in June 2022. The company had sold 124,280 units in June 2021.

Maruti’s mini category cars (Alto, S-Presso) and utility vehicle (Brezza, Ertiga, S-Cross, XL6) sales decreased year-on-year, however it witnessed a rise in compact car sales (Baleno, Celerio, Dzire, Ignis, Swift, Tour S, WagonR) in June 2022 as compared to June last year.

The shortage of electronic components had a minor impact on the production of vehicles, mainly in domestic models. The Company took all possible measures to minimize the impact, said the carmaker in a statement.

Tarun Garg, Director (Sales, Marketing and Service), Hyundai Motor India said, “With the semiconductor situation showing signs of easing out, the sales numbers have again started showing a positive trend.”

Shailesh Chandra, Managing Director, Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility said, “For the month of June 2022, sales were highest ever at 45,197 units. Nexon EV Max launched in May 2022, has witnessed strong demand. Going forward, we expect the supply side, including that of critical electronic components to progressively improve. We will continue to keep a close watch on the evolving demand and supply situation and take appropriate actions.”

The maker of Nexon recorded sales of 41,690 ICE PVs and 3,507 electric PVs in June 2022.

Veejay Nakra, President, Automotive Division, M&M said, “We sold 26620 SUVs in June and overall, 54,096 vehicles, registering a growth of 64%. XUV700 achieved yet another milestone of being awarded the coveted Global NCAP ‘Safer Choice’ Award for being the safest car in India.”

Kia India said June 2022 sales were its highest ever sales in a month, led by Seltos and Carens with 8,388 and 7,895 units sold, respectively, followed by Sonet with 7,455 units and Carnival with 285 units sold.

Similarly, June 2022 also set a record for Skoda Auto’s highest ever monthly sales.

For MG Motor, “the momentum in sales comes on the back of some ease in semiconductor availability, even though the outlook remains constrained in the wake of supply-chain roadblocks and persistent logistical headwinds.”

Two Wheelers

The two wheeler industry touched an 8-year low volume of about 18 million units in FY2022, led by the decadal low domestic market sales.

“FY2023 began on a positive note as volumes saw a healthy recovery during the first two months aided by healthy rabi cash flows, which facilitated sales during festivals and marriage season (in northern India). Despite the recovery seen, expectation of record high general inflation, commodity price-induced 2W price hikes and likely increase in financing rates may keep discretionary spending constrained in the near term,” said Gupta of ICRA.

The ratings agency said while it expects a modest 7-9% growth in the industry volumes in FY2023, timely onset, progress and even distribution of the monsoon will be crucial for rural cash flows and demand sentiments in the next few quarters.

During the month of June 20222, country’s largest two wheeler maker Hero MotoCorp reported overall (domestic + exports) sales of 4,61,421 motorcycles and 23,446 scooters. Domestic sales for the automaker increased 6% year-on-year.

While rural sentiment improvement led to gradual recovery in volumes for Hero, subdued sales of the entry-level bike segment have been impacting the sales of its overall bike portfolio since the past few months, said Reliance Securities.

“The growth in volumes indicate the continuously improving consumer sentiment and the company expects the positive trend to continue in the coming months, on the back of a decent monsoon, and encouraging farm activity,” said Hero MotoCorp.

Atsushi Ogata, Managing Director, President & CEO, Honda Motorcycle & Scooter India (HMSI) said, “The growth expectations with which we set out in the beginning of FY 2023 is gradually turning into a reality. Timely arrival of monsoons has impacted the economic indicators favorably. We expect the coming months to sustain this upward trend as more customers look for two-wheeler mobility options.”

Reliance Securities said it expects Bajaj Auto’s exports to come under pressure in coming months and the company would record decline in overall sales for FY23.

According to TVS, the shortage in the supply of semiconductors has impacted the production and sales of premium two wheelers, however some improvement has been seen this month.

The domestic two-wheeler sales for TVS include its iQube Electric sales of 4,667 units in June 2022.

Commercial Vehicles and three wheelers

Shamsher Dewan, Senior Vice President & Group Head, Corporate Ratings, ICRA Limited said, “After two consecutive years of sharp volume contraction, the domestic CV industry volume grew by 26% in FY2022, supported by the low base, improvement in economic activity and financing environment. In FY2023, ICRA expects the CV sales volume to grow between 11-14%, driven by freight demand, economic recovery and the Government’s infra spending. However, inflation in fuel prices and its impact on viability of fleet operators will remain a key challenge.”

Market leader Tata Motors reported highest sales for the SCV cargo and pickup category at 16,632 units, followed by M&HCV sales at 9,191 units, I&LCV sales at 4,718 units and passenger carriers at 3,868 units.

Mahindra reported highest sales in the LCV of 2 T – 3.5 T category at 16,405 units, followed by three wheeler sales at 4,008 units, LCVs of less than 2T at 3410 units and LCVs over 3.5 T along with M&HCVs at 616 units.

“Despite the near-term hiccups, we believe the CV industry is heading towards the next up cycle. Pick-up in construction activities and infra projects have started helping the CV segment gradually. Moreover, the bus segment has started witnessing recovery and it would see further improvement with commencement of schools and colleges in 2022,” Reliance Securities said.

Tractors

Sales for the tractor maker witnessed an uptick on a month-on-month basis. However, due to the high base of last year, they remained in the red on a yearly basis.

Hemant Sikka, President – Farm Equipment Sector, Mahindra & Mahindra said, “With good prices for Rabi output, cash flow with farmers is good. Government’s approval of an increase in MSP for all Kharif crops and forecast of a normal monsoon is very positive for a bumper Kharif crop.”

“Though Kharif sowing is lagging in the first fortnight of the season than last year due to deficient rainfall in key kharif states, further advancement of Southwest monsoons across the country brings in positive sentiments and is likely to boost the tractor demands in the coming months,” he said.

Industry wholesales were impacted during the month of June 2022 due to the high base of last year. With onset of monsoon, and likely record kharif crop production, rural liquidity and farmer sentiments are expected to gradually improve, said Escorts Kubota.

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