Auto firms post record production in June, make up for halt in May

With unlocking and a normal monsoon, industry expects sales momentum to continue, commodity price a worry

Low stocks with dealers due to the production halt in May forced auto companies to raise output in June, leading to multi-fold growth in wholesale dispatches for the month. Auto sales are a key barometer of the economy.

Industry executives said that they expect the momentum to continue, as most of the country is likely to witness a normal monsoon leading to growth in disposable income aided by an urge to shift to personal mobility from public transport.

The country's largest carmaker Maruti Suzuki reported an over three-fold increase in total sales at 147,368 units in June, from 46,555 units in May, as easing of Covid-related curbs helped the auto major to dispatch more units to dealerships.

The country's largest carmaker said its domestic dispatches to dealers last month stood at 130,348 units, as compared to 35,293 units in May.

Sales of mini cars, comprising Alto and S-Presso, rose to 17,439 units in June as against 4,760 units in May this year.

Similarly, Hyundai Motor India (HMIL) reported a growth of 62 per cent on MoM basis to 40,496 units in June compared with 25,001 units in May, in the domestic market.

After more than two weeks of factory closure in May due to the second surge of the pandemic, most automakers like Maruti Suzuki Hyundai Motor India and Tata Motors had started manufacturing in all three shifts this month.

“With markets opening up and improvement in customer sentiments, Hyundai is committed to deliver innovative and world-class quality products and services meeting and exceeding customers aspirations. The newly launched Hyundai Alcazar has been receiving tremendous customer and media response, setting some new benchmarks in the industry,” Tarun Garg, Director (Sales, Marketing & Service) at Hyundai said.

The auto industry is encouraged by the growth in number of two wheeler sales with all three leading manufacturers- Hero MotoCorp, Honda Motorcycle and Scooters and Bajaj Auto reaching or surpassing last year’s June sales. A good harvest in the Rabi season and expectations of a normal monsoon are likely to drive the rebound in two wheeler sales as there is a large pent up demand with people not being able to buy during the April-May marriage season as the pandemic had impacted rural areas.

“Overall sales performance was better than expected as deterioration was lower and the situation started improving in the last few days of the month. We expect sales volume for the month of July 21 would be much superior with healthy improvement,” said Mitul Shah, Head of Research at Reliance Securities.

Hero MotoCorp, the country’s largest two wheeler maker said that Heading into the upcoming festive season, the company is optimistic about the customer demand in the coming months. It expects that expected surge in personal mobility, forecast of a normal monsoon in several parts of the country and the improving rural sentiment are expected to lead to a swift revival in sales.

Hero’s optimism was shared by YS Guleria, head of sales at Honda Motorcycle and Scooter India. “ The fundamentals look strong but we can expect the momentum to continue,” he said.

However, what is worrying companies is a spike in input costs which will pinch profit margins. For instance last week, Maruti Suzuki said it will increase the prices of its cars from July. It was followed by Hero Motocorp.

“Over the past year the cost of the company's vehicles continues to be adversely impacted due to an increase in various input costs. Hence, it has become imperative for the Company to pass on some impact of the above additional cost to customers through a price rise,” the company had said.

Bajaj Auto’s input costs have risen by 4-5 percent, against which the company has taken price hikes of 4 per cent in phases. The two-wheeler maker’s Ebitda margin contracted 60 basis points (bps) year-on-year and 170 bps quarter-on-quarter to 17.7 per cent in Q4. The firm expects a further 300 bps impact in Q1 of FY22, for which it has taken a price hike of 1.5-2 per cent in April.

Rakesh Sharma of Bajaj Auto told a TV channel that ever since April, there has been a push on the commodity and precious metal side, pushing up costs for the company, which it is passing onto customers.

“We have passed them on in April, there is a price increase announcement expected in the next 48-72 hours from our side,” he stated.

Analysts say that despite the increase in production cost, the uncertainty in demand will make it tough for companies to hike prices.